Dechra shares are top dog

Dechra
Pharmaceuticals

427.9p -4.3

Questor says BUY

FLORENCE Nightingale was one of the first people to advocate the benefits of companion animals for the chronically sick. Since the 19th century, Britons' love for their pets has become legendary.

In the UK there are now 8m dogs, 8.4m cats and 1m horses. In the US there are even more – 75m dogs, 82m cats and 10m horses.

Dechra is a veterinary products group with a strategic focus on animal pharmaceuticals.

It is well established in Europe and is moving into the US, which should underpin strong growth in the next few years.

The company develops its own-branded veterinary pharmaceutical portfolio, focusing on prescription-only medicines for dogs, cats and horses. It specialises in dermatology, endocrinology, equine medicine, ophthalmology and critical care.

During the last five years it has licensed four specialist products, of which Vetoryl capsules and Felimazole tablets look suitable for the international market.

Vetoryl is a novel product for the treatment of Cushing's syndrome in dogs, which is relatively common. Cushing's syndrome is a hormonal disorder caused by prolonged exposure of the body's tissues to high levels of the hormone cortisol.

The company successfully gained FDA approval for Vetoryl in January. It is marketed within the EU in 21 territories. It is sold in the
US under an FDA waiver scheme and through special import schemes into other countries such as Canada and Australia.

Felimazole was the first veterinary-licensed product for the treatment of feline hyperthyroidism. It received marketing approval for the UK and was launched into most major EU territories at the end of 2005.

The company has five novel products in development and two generic products at the regulatory stage of approval.

Of course, even this business has not been immune to the effects of the recession. Dechra estimates that the UK saw growth of 6.8pc during 2009 compared with 10pc in 2008. However, this still represents strong growth.

The company's latest full-year results to June 30 were solid. Revenues rose 15pc to £350m and pre-tax profits rose 38pc to £16.1m. The group managed to reduce its net debt to £15.5m from £27m at the end of the previous year.

The total dividend payment rose by 10pc to 9.1p, so the shares are yielding 2.3pc. This is not spectacular but there should be plenty of scope for increase in the next few years.

You can still buy into the shares and bank the final
6.1p payment, as the shares trade ex-dividend on November 11.

The increasing popularity of pet insurance is also positive for Dechra. This allows animal owners to
pay for a wider range of treatments for a longer period of time throughout their pet's lifetime. It is estimated that the pet insurance market is growing by about 20pc a year in the US.

Dechra's shares are trading on a June 2010 earnings multiple of 14.9 times, which is a premium to the pharmaceuticals sector. However, Questor feels this is warranted because growth over the next few years is likely to be strong.

The increase in earnings per share is likely to be slower this year than the 20pc-plus seen in the last two years – analysts are pencilling in growth of 11pc. However, from 2011 it is expected to accelerate once more.

The shares are trading on a June 2011 earnings multiple of 12.8, falling to 10.9 the next year. Buy.

Cape

269p +3

Questor says BUY

THE share price of mining, chemical and energy services group Cape continues to recover, after the market priced the group for total failure earlier this year. Cape remains one of the top gainers in the Questor portfolio, rising 312pc.

On Friday, the company confirmed three UK contract renewals, with a combined value of more than £25m.

Saudi Basic Industries Corporation has renewed its contract for maintenance services at its chemical complex in Wilton, Teesside. It has been extended for another year with options to extend for a further two.

Cape has also received a letter of intent from National Grid to renew its contract to supply access services.

The contract builds on a long-standing relationship between Cape and National Grid by expanding beyond the north-west and south of England to supporting all of their industrial assets throughout the UK. The contract extends for another three years, with options for a further two.

The third contract is from Swiss pharma giant Novartis. Cape has been awarded a three-year extension to a contract to provide access, insulation and associated maintenance services at Novartis' complex in Grimsby.

Cape shares were recommended at 65.5p on March 22 and, even after the large gains, they are still trading on an attractive rating. The shares are trading on a December 2009 earnings multiple of just 7.8 times.

Questor expects to hear news of more contract wins in the coming months, especially in the Middle East. Buy.

VinaCapital Vietnam Opportunities Fund

$1.81 +0.02

Questor says BUY

The Vietnam Opportunity Fund (LSE: VOF), which is managed by country specialist VinaCapital, is one of the easiest ways for UK investors to play growth in the Asian nation.

Questor is bullish on the prospects for Vietnam because of its high literacy levels, young demographics and low wage costs.

Last week, Credit Suisse said it expected Vietnam's economy to grow by 5.3pc in 2009 – its lowest level for 10 years. However, it expects growth to accelerate to 8.5pc in 2010, citing solid domestic consumption and anticipated recoveries in exports and investment. This is higher than the 6.5pc forecast by the Vietnamese government for 2010.

The shares were recommended at $1.71 on September 13. Buy.