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UPDATE: Alliance Pharma buys stoma care product specialist

UPDATE: Alliance Pharma buys stoma care product specialist

--adds broker comment and share price--

Speciality pharmaceutical company Alliance Pharma (LON:APH) has snapped up stoma care product specialist Opus Group for about £9.5 mln.

Opus group sells a range of products for stoma care [colostomy, ileostomy, urostomy] including skin creams and cleansers, in the UK and Ireland and generated underlying profits of £2.1 mln on sales of £3.8 mln in the year to March.

The consideration is being funded from existing cash and bank facilities. Opus’ founders Hugh Brady and John Williams will stay on for six months until David Hope, Alliance's sales and marketing director for secondary care, takes over.

“We are very pleased to complete this second major acquisition of 2012,” said John Dawson, Alliance Pharma’s chief executive.

“Opus is an exciting business with good growth potential that matches our business well in terms of customers and business drivers. It will be immediately earnings enhancing for Alliance.”

The deal will see Alliance pay £8 mln plus the net asset value of around £1.5 mln.

It will be funded out of the company’s existing revolving cash facility (RCF). The company has now spent £16.5 mln of the £20 mln available.

Alliance’s strategy is to buy up mainly prescribed and well established branded products that need little marketing.

The company owns or licenses the rights to more than 50 pharmaceutical products. Sales are mainly prescription driven and to hospitals directly or to pharmaceutical wholesalers.

Broker Numis upgraded the company from ‘add’ to ‘buy’ today, with a target price of 37 pence, up from 32 pence.

Analyst Charles Weston forecasts revenue growth of 5% per annum for Opus.

He also believes the business will require £300,000 in additional management investment, £400,000 in related support costs and £500,000 in additional interest costs on the RCF.

Weston also forecasts a 9% uplift to earnings per share in 2013, while he adds that this will increase as debt is repaid.

The news lifted the share price by 1.5 pence or 5.4% to 29.5 pence.

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