Alliance Pharma fails to grow profits amid ongoing uncertainty

It has been a fraught year for Alliance Pharma (APH) and its shareholders. First there were multiple delays to the publication of its annual results to allow auditors more time with the accounts (never an encouraging sign). Then it was revealed last month that chief executive Peter Butterfield would be leaving the group “to pursue other business interests”.

In light of these events, it's hardly surprising that the shares are down some 30 per cent over the past 12 months. Ultimately, Deloitte identified some weaknesses in Alliance’s “internal control environment”, including its approach to valuing its intangible assets. The correction of these errors led to a £28.3mn increase in non-cash impairment charges compared with the prior year.

The question now is whether the company’s portfolio is strong enough to propel it forward after this period of volatility. The answer is not straightforward. Strong demand from consumers drove a recovery in the Kelo-Cote scar prevention franchise in the second half, following a drop-off in volumes at the start of FY2023. 

With over £63mn in sales last year – up from £50mn previously – Kelo-Cote is an outsized contributor to Alliance's overall revenue. Meanwhile, sales of the group’s Nizoral medicated shampoo were flat and troubles with stocking at Amazon saw revenue from its Amberen multivitamins fall 25 per cent to £11mn. 

The board expects profit levels in the current financial year to be “in line” with FY2023.

Flat forecasts are rarely enough to excite investors – but the shares climbed nearly 12 per cent on the day Alliance released its results. Although the company trades on less than 8 times projected earnings, we’d argue this is a fair price given how much uncertainty remains. Hold.

Last IC view: Hold, 51p, 26 September 2023