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UDG Healthcare upgraded to ‘Buy’ by Jefferies as broker says market “overreacted” to C&C weakness

AnalystS said that reaction to the weaker performance in the C&C division was “overblown”, “especially given the continued strong performance in Communications and Advisory”
The broker also trimmed its target price to 890p from 895p to reflect a 20% potential upside

UDG Healthcare PLC (LON:UDG) has been upgraded to ‘Buy’ from ‘Hold’ by broker Jefferies as it said the market was discounting momentum in the business and had overreacted to a weaker performance in the commercial & clinical (C&C) arm of its Ashfield business.

Analysts at the broker said that market reaction to the weaker performance in the C&C division was “overblown”, “especially given the continued strong performance in Communications and Advisory”.

READ: UDG Healthcare sells non-core Aquilant division and reviews Ashfield business

“While C&C accounts for 68% of Ashfield's sales, it only accounts for 39% of [underlying earnings] EBITA and so while we expect it to remain core to its business, we expect future focus to be more towards the higher margin Communications and Advisory businesses” they added.

Jefferies also said that they expected “double-digit operating profit growth in [the third quarter]” in addition to 7.8% growth in EBITDA in the second half of the financial year, adding that “encouraging” performance in the US market for UDG’s Sharp division led them to predict that “positive momentum should continue in 2019”.

Additionally, analysts said the firm’s sell-off of its Aquilant division to a European private equity firm provided “a compelling entry point” as the sell-off coupled with the negative market reaction to the weaker performance in C&C was “the buying opportunity we’ve been waiting for” as the market was currently “discounting momentum in the rest of the business…given management’s solid track record”.

On Wednesday, UDG said it had agreed to sell Aquilant, a distributor of specialist medical, pharmaceutical and scientific products, to H2 Equity Partners for an initial €20.5mln in cash and a deferred consideration of up to €2.5mln based on whether the business meets gross profit targets in fiscal years 2018 and 2019.     

The broker also trimmed its target price to 890p from 895p previously, reflecting a 20% potential upside.

In mid-morning trading Thursday, UDG shares were up 3.8% at 763p.

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