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UPDATE - Alliance Pharma churning out cash

Last updated: 21:22 19 Jan 2015 AEDT, First published: 22:22 19 Jan 2015 AEDT

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Speciality pharmaceutical company Alliance Pharma (LON:APH) said its profits for 2014 should be in line with expectations once the final numbers are totted up.

Cash generation remained strong in 2014, as a result of which net debt fell by £4.6mln to stand at £21.1mln at the end of 2014.

With £24mln of headroom on its borrowing facility, the acquisitive company, which likes to buy up niche products that provide solid returns from the big pharma companies, has plenty of scope to fund acquisitions.

Turnover during 2014 is expected to total £43.5mln, down from a restated £45.3mln in 2013, largely as a result of the expected reduction in toxicology product sales from £3.9 million in 2013 to £0.1 million in 2014 and the decline in Nu-Seals sales from £3.1 million to £2.5 million as a result of generic competition in Ireland.

On the bright side, sales of the Hydromol dermatology range grew 15% year-on-year to £6.0mln and sales of the storma care range grew by 10% to £4.3mln.

Sales of Forceval recovered from the overstocking issues in 2013 to reach £3.5 million, versus £1.9mln in 2013. Having overcome production problems, the company saw sales of Ashton & Parsons Infants' Powder rose from £0.4mln in 2013 to £1.3mln in 2014.

Canaccord Genuity raised its target price on Alliance after the trading update from 33p to 37p.

The 2014 sales guidance of £43.5mln was a shade below the broker’s forecast of £43.8mln, and with full-year profit expected to be in line with market expectations Canaccord Genuity is making no change to its forecast of £11.2mln adjusted pre-tax profit.

Cash generation was slightly ahead of the broker’s expectations.

“Headwinds look likely to continue in FY-15 as the effect of Nu-Seals competition is on-going, and price pressure on the core non-promoted products will also continue due to the implementation of the UK’s five year price regulation scheme; this affects around a third of the APH portfolio,” Canaccord’s Julie Simmonds noted, as she reiterated her ‘hold’ recommendation.

Although promoted products are performing more strongly, the broker expects Alliance's revenues and profits in 2015 to be more or less flat, with a return to growth in 2016 as headwinds blow out.

In addition, Alliance could benefit from the reintroduction of Immucyst, a bladder cancer treatment that brought in £4mln in revenues a year before being withdrawn due to supply issues in the second half of 2012.

The product could be reintroduced in the second half of this year, the broker believes.

“A move to more consumer products that are not affected by government prompted pricing reductions offers a new route to growth. However, these products require additional marketing compared to the pharmaceutical brands they replace. Roll-out of these campaigns is expected in FY-15 and consequently we expect a slightly lower operating margin for the year with improvement into FY-16,” the broker said.

Shares in Alliance Pharma were down 0.25p at 36.5p in late-morning trading.

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