Why Australian Pharmaceutical Industries’ Share Price has Tumbled

The Australian Pharmaceuticals Industries Ltd [ASX:API] share price took a severe hit today, down 10.71% to AU$1.69 at time of writing. The pharmacy chain’s share price fell to a two week low, with no news from the company regarding the fall at this stage.

API is one of Australia’s leading pharmaceutical distributors and fastest growing health and beauty retailers with a market cap of $835.65 million.

What caused the drop in Australian Pharmaceutical Industries’ share price?

Fundamentally, API is a financially robust company with a strong record of great dividend payments. Its sound financial health means it’s well placed to meet all of its upcoming liability payments, implying API manages its cash and cost levels well.

So, what caused the drop? It was likely sparked by a broker note out of Credit Suisse this morning. The note downgraded the pharmaceutical giant’s shares from a neutral rating to ‘underperforming’, cutting the price target from $1.69 to $1.55.

API has posted strong performance since its acquisition of skincare brand Clearskincare in August, recently recording a 52-week high of $1.94 on the back of its expansion into the skincare market.

However, Credit Suisse fears any gains could be diminished when the company posts its results in October.

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The company’s managing director and CEO, Richard Vincent, believes that the acquisition is complementary to API, allowing it to apply its operational capabilities and scale to accelerate Clearskincare’s growth. As he stated:

The acquisition fulfils our criteria for aligning with a robust business in a burgeoning sector of the health and beauty market…and to which we can add further value for customers, clinic teams and shareholders’.

This sentiment appears to have pleased investors, however, Credit Suisse analysts are cautious. API’s core business has faced increasing challenges with a number of pharmaceutical manufacturers, deciding to bypass the CSO wholesalers and directly supply their medicines to community pharmacies.

What’s next for API?

Compared to its peers in the healthcare industry, API is trading below par, relative to earnings generated. However, ongoing issues between manufacturers and distributors are have put both PBS and retail revenues under pressure.

Credit Suisse has further cautioned that API’s shares could be de-rated in October when the full extent of the tough trading conditions are realised, implying a further downside for the company’s shares over the next 12 months.

Will this be a continuing trend for API?

Only time will tell, but with other pharmaceuticals also suffering from tough trading conditions it is best to be mindful of these facts.

Regards,

Ryan Clarkson-Ledward,
For Money Morning

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Ryan Clarkson-Ledward is an Editor at Money Morning.

Ryan holds degrees in both communication and international business. He helps bring Money Morning readers the latest market updates, both locally and abroad. Ryan tackles all the issues investors need to know about that the mainstream media neglects.

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