Bottom Line: The market is wrong to undervalue Unichem

YOU might think that the four pharmaceutical retailers and wholesalers would have similar stock market ratings, but in fact the ratings for AAH, Boots, Lloyds Chemists and Unichem differ sharply.

Top of the pile is Boots, which rose 11p yesterday to 486p. Assuming it announces profits of pounds 410m for the year just ended, the p/e ratio is 18, above the market average. It is, however, more a mainstream retailer than simply a chemist.

Bottom of the pile is Lloyds Chemists, which is none the less the most exciting of the four. Lloyds has grown through acquisitions and it appears to have managed the growth well, though there are doubts about the clarity of its accounting. If it lives up to expectations its forward multiple is a little over 10.

Most puzzling is the stock market's attitude to AAH and Unichem. AAH's shares are trading on a market average of 15 times earnings for the year just ended. Unichem, with its year ending in December, is trading on a meagre 13 times earnings.

The two dominate the supply of pharmaceuticals to independent chemists, which still represent 80 per cent of the whole market despite the high profile of Boots' and Lloyds' outlets. They are both busily establishing their own chains of retail pharmacies.

The difference between the two, and hence the difference in rating, is that AAH also has building materials and consumer products, which are more exposed to recovery.

But it is wrong to undervalue Unichem because it operates solely in the defensive pharmaceutical business. It is increasing margins and its management is also exploring new markets in Europe.

Unichem, formerly a co-operative owned by independent chemists, was floated in late 1990. It has outperformed the rest of the market by 40 per cent over the period. The history over the last six months has been more pedestrian, but this does not reflect Unichem's qualities. Buy.