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

Following the release of its full-year results, is it time to buy shares in Australian Pharmaceutical Industries Ltd (ASX: API)?

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

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)

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.

More on Healthcare Shares

Cropped shot of an attractive young female scientist working on her computer in the laboratory.
Healthcare Shares

CSL share price leaping higher amid $1.9 billion funding news

ASX 200 investors are bidding up the CSL share price on Wednesday.

Read more »

Two happy scientists analysing test results.
Healthcare Shares

Mesoblast share price rockets 36% on breaking FDA news

ASX investors are sending the Mesoblast share price soaring following promising FDA news.

Read more »

a doctor in white coat and stethoscope stands in front of a building holding an electronic device in his hands.
Healthcare Shares

Guess which ASX 200 healthcare share is jumping 7% on a guidance update

This healthcare share is performing better than expected in FY 2024.

Read more »

a biomedical researcher sits at his desk with his hand on his chin, thinking and giving a small smile with a microscope next to him and an array of test tubes and beackers behind him on shelves in a well-lit bright office.
Earnings Results

Chemist Warehouse merger target Sigma reports 149% FY24 profit jump

This could be the last set of results from Sigma as we know it if its merger is approved.

Read more »

Cropped shot of an attractive young female scientist working on her computer in the laboratory.
Healthcare Shares

1 ASX healthcare stock that looks severely undervalued

I think this stock looks too cheap to miss.

Read more »

Stethoscope with a piggy bank and hundred dollar notes.
Healthcare Shares

Own Medibank shares? Here's why it's a rewarding day for you

Shareholders are getting a healthy boost today.

Read more »

Health professional looking at a laptop.
Healthcare Shares

Are CSL shares a must-buy in March?

Let's see what analysts are saying about this high-quality company.

Read more »

A woman jumps for joy with a rocket drawn on the wall behind her.
Healthcare Shares

This ASX healthcare stock is up 72% on FDA news and 'historic moment'

Huge gains are been recorded by this stock on Tuesday. But why?

Read more »