MENU

Is it time to buy shares in Australian Pharmaceutical Industries Ltd (ASX:API)?

The share price of Australian Pharmaceutical Industries Ltd  (ASX: API) has been on a roller coaster ride over the last 2 years. After reaching a high of $2.38 in May 2017, the company’s shares were sold-off on fears that it would not meet profit expectations amid an increasingly difficult trading environment in its retail and pharmacy distribution businesses. Rival Sigma Healthcare Ltd (ASX: SIG) has fared even worse following the loss of its Chemist Warehouse supply contract.

After bottoming at $1.23 in late April 2018, shares of Australian Pharmaceutical Industries have enjoyed a bounce with the $127 million acquisition of Clearskincare Clinics in June leading to a re-rating.

Flat FY18

Last Thursday’s release of the company’s full-year numbers reaffirmed the tough conditions the company has faced in its core businesses. Australian Pharmaceutical Industries saw revenue fall 0.9% to $4,026 million in FY18, which management attributed to reduced demand for Hepatitis C medicines of around $155 million. The company noted that after excluding Hepatitis C medicines, revenue actually grew by 3.3% over the prior corresponding period.

Underlying EBITDA in FY18 decreased by 1.5% to $118.7 million primarily due to the impact of a rise in the number of price reduction cycles in the PBS and exclusive direct distribution arrangements. Statutory net profit after tax fell by 8.2% to $48.1 million for the period. However, this included one-off costs of $6.6 million from the Cleanskincare purchase and business restructuring expenses to lower the company’s cost base. After backing out these costs, underlying net profit after tax was actually up 0.9% to $54.7 million.

Foolish takeaway

Australian Pharmaceutical Industries’ share price is down 3% post-earnings to $1.67 at the close of Monday trade. The company posted underlying earnings per share of 11.1 cents in FY18, which sees it currently trading at a reasonable valuation multiple of around 15 times trailing earnings.

Management has indicated it expects growth in FY19 without providing an estimate. The company will wait for the vital Christmas trading period and the result of the Community Service Obligation review, which will examine exclusive supply arrangements among other things before providing further guidance to the market.

The acquisition of Clearskincare and the move into an adjacent market is something to watch as the company integrates the acquisition and expands its network. Nevertheless, the challenging trading environment in the company’s core businesses remains a concern, and as such, I think there are better opportunities in other Australian healthcare companies such as CSL Limited (ASX: CSL) and ResMed Inc (ASX: RMD)

OUR #1 dividend pick to grow your wealth now is revealed for FREE here!

You might not know this market leader's name, but it's rapidly expanding into a highly profitable niche market here in Australia. Even better, the shares boast a strong, fully franked dividend that should balloon in the years to come. In other words, we're looking at the holy grail of incredible long-term growth potential AND income you can watch accruing in your account in real time!

Simply click here to grab your FREE copy of this up-to-the-minute research report on our #1 dividend share recommendation now.

Motley Fool contributor Tim Katavic owns shares of CSL Limited. The Motley Fool Australia has recommended ResMed Inc. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.