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Is Eco Animal Health set for a share price correction?


Eco Animal Health Group LON:EAH the AIM-listed, London-based international veterinary pharmaceutical company, is starting to see its share price climb back towards where it was a year ago, after a torrid couple of months where Eco’s shares dropped as low as 82p at the end of March.

Eco opened the week at 110p on the back of a reasonably positive Trading Update on 25th April, outlining its progress to the end of 1Q24, hitting market expectations in revenue terms of GBP88.7m, reporting it is expecting revenues of around GBP90m by the year’s end.

Despite, said management, unfavourable currency fluctuations, Eco should outperform expectations by more than 10% compared to end-March 2023. Earnings should also be in line with market expectations of GBP7.8m notwithstanding Eco’s investment into research and development during the year. The company has GBP22m of cash-in-hand.

David Hallas, Eco’s chief executive said: “I am delighted to be able to confirm that Eco has delivered strongly on its profit expectations. We are particularly pleased to have achieved these positive results despite experiencing challenging market conditions, currency headwinds, and while continuing to invest heavily in our promising R&D pipeline, which we believe has significant potential to drive future growth and value for shareholders. We look forward to completing the audit and releasing our Annual Report and Accounts in July.”

The sector has been under something of a cloud since Premium Market-listed Genus LON:GNS, one of Eco’s core competitors, given its position in swine treatment in China, announced a profit warning in February, and the market was expecting a similar wobble from Eco. However, this latest trading update has allayed the market’s fears – to an extent – about Eco’s near-term prospects.

Eco Animal Health trading update

Sean Conroy, a sector analyst for investment broker, ShoreCap, which has Eco Animal Health Group under coverage said: “With Genus’s profit warning (in February) weighing on the share price over the past two months, we believe this highly reassuring trading update today should serve as a clearing event and support a correction to the share price, which still looks disproportionately penalised for Genus’s misgivings, in our view.”

ShoreCap rates Eco as a ‘Buy’ citing the pharma company’s “sizable discount” to Eco’s animal health peers of 11.1x and 11.8x on an enterprise value/EBITDA basis and given Eco’s pipeline has a fair value price of 175p – or an 85% upside on the share price as at 25th April. Even with delays in the drug development pipeline, ShoreCap believes that Eco’s share price should be closer to 150p.

Conroy said: “Securing regulatory approvals for its Mycoplasma poultry vaccines (1H25) should provide a catalyst to allow more value to be ascribed to the pipeline,” and argues that now is a great buying opportunity.

Treatments in the animal healthcare sector

Eco is focussed on developing treatment in the animal healthcare sector, specifically vaccines and antibiotics for poultry and swine and had markets in 70 countries. The company’s leading product is Aivlosin, a proprietary medication for treating respiratory and intestinal complaints in pigs and poultry. The company’s medications also treat parasites and is developing new treatments in its core markets. Focussed on swine and poultry, Eco recently disposed of its ECOmectin equine parasite medication for EUR1.3m to Italian firm ACME drugs, the proceeds of which were rolled back into its core R&D.

Shares are down by 8.1% from a year ago, opening the week at 110p. Over the year-to-date, shares are up 1.4%, but have been on a decent run since its low-point of 82p on 27th March. The company has a market capitalisation of GBP72.8m and its shares have ranged between 82p and 125p over a 52-week period.

This trading update should have given shareholders hope that the share price will start to motor in the right direction and illustrate to analysts that Eco isn’t Genus and is writing its own story. If you believe ShoreCap, now might be a window of opportunity to buy before the firm releases any more positive news.

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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