Poised to recover in 2022

ECO Animal Health’s shares currently stand at a 52-week low, likely on concerns over its exposure to the unpredictable Chinese pork market. Sales of the company’s main product, Aivlosin, are highly exposed to the economics of the pig farming sector in China, which has moved from an unusual situation of shortage in 2020 to one of over-supply this year. Thus, the investment proposition is currently geared to a recovery in Chinese pork prices and rebalancing of supply and demand, something that should occur - not least because of State intervention in the market designed to bring this about.

In the longer term, ECO offers investors exposure to a niche within animal health characterised by favourable economic drivers (demographics, good practices in farming) in which it enjoys a strong market position.

Equity Development is in the early stages of formal coverage, so is not publishing forecasts at this point; a comprehensive initiation should be published in due course. Consensus FY22 forecasts suggest sales of c. £81.5m and adjusted EBITDA of £9.4m. The enterprise value is £113m, which based on consensus FY22 figures, suggests an EV/sales of 1.5 and EV/EBITDA of ~12, both well below the average in the animal health sector.