PRIMA EKUITI INVESTMENT CHALLENGE 2016

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Agenda 1. Company Background2. Macroeconomics Development

and Outlook3. Comparative Advantage4. Financial Analysis5. Valuation6. Key Risks7. Final Recommendation8. Appendix

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COMPANY BACKGROUND

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Line of business

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International specialist veterinary pharmaceuticals and related product business.

Dechra Pharmaceutical

s PLC

EU Phamaceuticals

North America Pharmaceutical

s

Dechra Manufacturing

▫ 188.9m revenue

▫ Operates in 15 countries

▫ 58.7m revenue▫ World’s largest

veterinary market

▫ Maintain reliable supply chain

Leadership

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Chief Executive Officer: Ian Page

CEODechra Pharmaceuticals PLC

2001

Group Finance DirectorVitec Group PLC

Group Finance DirectorConsort Medical PLC

CFODechra Pharmaceuticals PLC

January 2017

Managing DirectorNational Veterinary

Services1998

Non-Executive ChairmanSanford DeLand Asset Management

2010

Chief Financial Officer: Richard Cotton

2008

2011

Investment Thesis

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Multiple Acquisitions

Launch of New Patented Products

Low Potential Downside

MAPS

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Macroeconomics Development and Outlook

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Financial Market’s Performance

Stock Index Index Price (7/11/2016)

Index Price(17/11/2016

)

Dow Jones US Health Care

Index720.96 747.66

Nasdaq Health Care Index 615.58 666.485

S&P 500 Health Care

Index787.67 813.19

Stoxx Europe 600 Health

Care666 689

FTSE 250 17457.66 17600.949

Want big impact?USE BIG IMAGE.

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“Reform the Food and Drug Administration, to put greater focus on the need of patients for new and innovative medical products”

“

Major Events

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Trump’s take on Pharmaceutical Sector

▫ Cheaper drugs abroad to be sold in US

▫ Reduce backlog of US Food and Drug Administration

▫ Reduce regulations on drug prices

Brexit

▫ Triggering Article 50 in March 2017

▫ Negotiation type between UK and EU remains unclear

▫ Finland model versus non-EU country model

Global Animal Health Industry Analysis

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*Animal Health market is divided into FAP and CAP.

Market Drivers

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Portfolio Advantage & Commercial Excellence

Innovation Competitive Forces

Market Restraints

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Impact of Regulations

Scarcity of Arable Land and Area

Comparative Advantage

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DPM

Dechra Pharmaceuticals Manufacturing

International Footprint

Compete in Niche Market

Views on Brexit

FINANCIAL ANALYSIS

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Key Ratios Year 2014A 2015A 2016A

Debt/Equity Ratio 0.15 0.17 0.56

ROE (%) 31.12 9.75 4.52

ROCE (%) 16.4 20.00 16.1

Operating Margin (%) 12.9 12.8 5.87

Current Ratio 2.42 2.46 2.45

EPS 37.48 39.9 42.95

Dividend Yield (%) 1.84 1.55 1.34

P/E Ratio 19.85 24.47 32.0117

Justifications

D/E ratio▫ Higher amount of debt raised this year due to multiple acquisitions made.

ROE and ROCE▫ Dilutive effect on earnings from equity and debt issued to finance acquisitions.▫ Higher operating expenses due to scaling of business.▫ Increased assets acquired.

Operating Margin▫ Higher finance cost and operating expenses from larger scale of business.

EPS▫ Increased this year due to organic growth, acquisitions, and positive movements in exchange

rate.

Dividend Yield▫ Dividend policy seems to be proportional to its trend of increasing income.▫ Decreasing due to higher share price although Div/share increased.

P/E▫ Relatively high, a sign of high growth of the company

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VALUATIONS

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Revenue Estimation

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EPS Estimation (Basic shares)

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DCF Model

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Target Price: £15.97(Different from report)

Key Assumptions:

▫ Revenue growth at 25.5% at 2017E and smoothed at a decreasing rate after 2017

▫ COGS as a percentage of revenue is 48% at 2017E and decreasing in the coming years

▫ CAPEX is at constant proportion of sales at 1%

▫ Tax rate is constant at 20%

▫ Selling, general and administrative is capped at 25.5% of revenue

▫ R&D is capped at 4.3% of revenue (Historic level)

Scenarios

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Bearish Scenario: £11.40 (12 months)

▫ Lower growth than GDP

▫ Higher regulatory impositions from Brexit

▫ Unable to improve revenue growth

Bullish Scenario: £16.30 (12 months)

▫ Higher gross margin than expected

▫ Lower regulatory hurdles in EU

▫ Faster terminal growth than GDP

Key Risks

Emergence of Internet

Pharmacies and

veterinary buying groups

Integration is more

challenging than

expected

Fail to meet regulatory

requirement

Continuous pressure on antibiotic

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FINAL RECOMMENDATIO

N25

Appendix ▫ www.dechra.com

▫ https://www.statnews.com/pharmalot/2016/11/15/donald-trump-pharmaceutical-industry/

▫ https://www.washingtonpost.com/news/wonk/wp/2016/11/14/trump-just-dropped-a-big-hint-to-the-pharmaceutical-industry/

▫ http://l.facebook.com/l.php?u=http%3A%2F%2Fuk.businessinsider.com%2Fpharmaceutical-and-healthcare-stocks-to-benefit-from-a-trump-presidency-2016-11&h=XAQHwLq9A

▫ https://l.facebook.com/l.php?u=https%3A%2F%2Fpharma.elsevier.com%2Fpharma-rd%2Fwhat-does-the-2016-us-election-mean-for-pharma%2F&h=XAQHwLq9A

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