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Results: Australian Pharmaceuticals share price falls 2% on half-year result

The Australian Pharmaceuticals Industries Ltd (ASX: API) share price has fallen 2% in early trade after the company reported flat half-year earnings.

What were the highlights of API’s half-year results?

API’s result was headlined by a 5% increase in earnings before interest and tax (EBIT) on prior corresponding period (pcp) but adjusted net profit after tax (NPAT) came in marginally higher at $25.0 million, up from $24.9 million in 1H18.

The company’s underlying earnings were adjusted to reflect the Sigma share acquisition-related costs incurred during the half.

Positively, the company saw key brands such as Priceline improve performance and a solid result from Clear Skincare in its first full half-year.

Despite flat earnings, management increased its dividend payout ratio from 59% to 77% during the half, with the interim dividend coming in at 19.7 cents per share (cps).

Underlying return on common equity (ROCE) fell by 34 basis points (bps) to 15.07% in the half despite underlying return on equity (ROE) increasing by more than 100 bps to 10.23%.

The company reaffirmed its capital management outlook with an ongoing review of its Sigma position and capex expected to remain at current levels in the second half.

Should you buy API shares?

Overall, the half-year numbers look pretty solid for API but I think they’ve been punished by investors as there are signs that future growth could be falling.

While earnings were generally flat or marginally higher across the board, the level of growth looks to be tailing off and the company’s Pharmacy Distribution results showed increasing margin pressure which was offset by higher volumes in the half.

I personally wouldn’t be looking to buy API shares until the full-year results come out in October and I think some Aussie tech options such as Afterpay Touch Group Ltd (ASX: APT) could be a better buy at this point.

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Motley Fool contributor Lachlan Hall has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of AFTERPAY T FPO. 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.

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