(Alliance News) - Investors were spooked by Dechra Pharmaceuticals PLC's "unscheduled" trading update, which warned it was likely to miss annual profit guidance.
The FTSE 250-listed veterinary pharmaceutical company said underlying operating profit for the financial year ended June 30 was likely to fall short of its GBP186 million guidance. It cited a more "volatile and challenging" trading environment in 2023.
Shares in Dechra were down 11% to 3,258.00 pence each in London on Monday afternoon, making it the worst performer in the mid-cap index.
On Monday, Dechra issued "another warning", Liberum said, which it described as a "negative trading update". Meanwhile, Jefferies described the update as "unscheduled."
Back in February, the Cheshire, England-based company had said profit was expected to be at the lower end of analyst expectations, which it cited at the time as a range of between GBP186 million and GBP199 million.
The trading environment from January to April was tougher than the firm had predicted when it provided that guidance, Dechra said.
"In the US, the impact of the now widely reported de-stocking by US wholesalers has been deeper and longer than initially expected and had a material impact on [the third quarter from January to March's] performance," it explained.
A similar destocking pattern also unfolded in the UK during April, as wholesalers managed their inventory levels at the end of the financial year, Dechra said.
It noted encouraging signs of a rebound in the US, and continued strong end-customer demand, with product sales from wholesalers to veterinary clinics up 11% year-on-year from January to April, according to independent data. Order patterns are also beginning to normalise in the UK.
"In the rest of Europe, the market appears to be slowing in response to the changing macro-economic environment and country-specific dynamics," Dechra noted.
"The board is confident that the group remains very well positioned to continue to grow over the medium and longer term despite the unprecedented and, by nature, short term trading headwinds," it continued.
Jefferies noted the "strong" customer demand from product sales as a positive looking ahead.
Dechra also said it remains in discussions with EQT X EUR SCSp and EQT X USD SCSp for a possible cash takeover offer of 4,070 pence. EQT has until June 2 to announce a firm intention to make an offer, or that it does not intend to make an offer.
"There can be no certainty that any firm offer will be made for Dechra," the company reiterated.
Liberum's Seb Jantet explained that as the company is in an offer period, it is unable to give any "formal guidance." However, Liberum expects profit to be at least 10% below expectations, suggesting a revised forecast of GBP167 million.
"While it is never helpful for trading to weaken during an offer period we don't think this will change EQTs appetite to make an offer, especially as "in market" sales remain strong," said Jantet.
"The key determinants of whether EQT will make a formal offer remain, in our view, getting comfortable about Dechra's ability to sustain growth and what remain tight debt markets. What it probably does is that it increases the likelihood that investors will accept an offer if one is put on the table."
Jefferies reiterated its 'buy' recommendation, with a target price of 3,124.00p. Liberum also rates the company at 'buy', with a target price of 4,070p.
By Sophie Rose, Alliance News reporter
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