Midas share tips: Eco's profits set to surge
The seasons are changing and there is a distinct chill in the air. This is the time when colds and flu take root, not just in people but in animals too.
Like humans, they lose their appetite, their immune system becomes weak and they frequently fall victim to other afflictions, such as tummy upsets.
For farm animals, the impact is particularly unwelcome. Farmers need their livestock to keep eating so they remain fit and put on weight at the desired rate. It sounds rather brutal, but if animals bred for slaughter stop eating, they have to be kept alive for longer and fed more, which can hit farmers' finances. Many flocks and herds are kept in relatively crowded conditions so if one animal falls ill, they are all at risk.
This is where Eco Animal Health Group comes into its own. The company owns a drug called Aivlosin, a strong and fast-acting animal antibiotic that treats colds, flu and gastroenteritis.
Every drug administered to animals needs to be registered and approved, a process that can drag on for years. Aivlosin has been approved in Europe, Asia and South America for use on pigs and poultry and the response from farmers has been enthusiastic.
Eco chairman Peter Lawrence is particularly excited about China, where sales have been soaring over the past year. The Chinese animal health market is huge and the country has the largest population of pigs in the world, thanks to its citizens' predilection for pork.
Lawrence hopes to have Aivlosin approved by the US Food and Drug Administration at the end of this year as well, which would allow the drug to be sold in America from the middle of 2010. Approvals are also being sought worldwide so that Aivlosin can be administered to other animals, particularly sheep and cattle.
Eco is not a one-trick pony, however. The company owns several other drugs, including a highly effective worming treatment, Ecomectin, which it sells in Europe and Asia, but hopes to market more widely once registrations come through.
In the year to March, Eco delivered underlying pre-tax profits of £3.74m, up 66% from 2008. Turnover rose 17.4% to £19.3m and the dividend was maintained at 7.15p.
Registering drugs costs millions of pounds so Eco does not have a lot of spare cash for investors, hence the decision to maintain the dividend. But the company's prospects are bright. The total amount spent on drugs for pigs with colds and flu is £750m worldwide. If Eco could capture just ten per cent of that market over the next few years, its turnover would quadruple.
Lawrence believes this is achievable, particularly as the company is making progress with Aivlosin and other products and recently acquired new distribution partners to sell its drugs across the world.
Analysts have high hopes for the business too, forecasting core profits of nearly £5m in the year to March 2010, rising to £6.8m the following year and more than £10m in 2012.
• Midas verdict: Eco Animal Health shares are trading at 165p. Over the next three to five years, sales and profits should surge as the company spends less on registration and is allowed to sell its drugs more widely. There is also the possibility of bid action in the years ahead. Buy and hold.
MIDAS UPDATE: Prostrakan shares deliver an 83% rise
Prostakan is a drug company, too - but it focuses exclusively on humans. Midas recommended the shares last November, when they were 83p. Today, they are 152p, a rise of 83 per cent in less than a year.
The strong performance reflects increasing confidence in the stock market that Prostrakan chief executive Wilson Totten is a man who lives up to his promises.
The company specialises in taking known drugs and delivering them in a different way. One of its key drugs, for example, is a testosterone product called Tostra in Europe. Tostra is used by men whose testosterone levels are falling and it is administered as a gel via a pump.
Other firms have similar products, but they are weaker and come in sachets so, for men who are told to use half a sachet, doses are less precise.
Prostrakan has just signed a deal with US company Endo Pharmaceuticals, which will distribute Tostra in America, where it will be called Fortesta.
The deal involves an upfront payment of $10m by Endo and a further $40m next year, with extra payments coming through over the coming years.
Prostrakan has three other major drugs, its most successful being Sancuso, which was recently launched in America and is an anti-nausea treatment administered via patches to cancer patients who are undergoing chemotherapy.
•• Midas verdict: Totten has always told investors that the company would become profitable in 2010 and they are starting to believe him.
Analysts predict losses of about £12 million this year, but profits of £9 million next year and £25 million in 2011. Investors who bought shares last year should take some profits, selling up to half of their holding, but retain a decent chunk as they should continue to be profitable.
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