ECO Animal Health issued a trading update in somewhat unusual circumstances given it is in its closed period and expects to report FY22 results on or around 18 August. The statement also flagged up two financial issues that had recently emerged: that it will have to make a provision for a possible but unanticipated sales tax sales liability and treat certain previously capitalised development costs as an expense. The impact of these two items will be largely offset by exchange rate gains and ECO expects to report sales in excess of £82.5m and EBITDA of £6.5m, both broadly in line with consensus.
On current trading, ECO said that Chinese revenue in Q1 FY23 (April-June) was significantly below levels recorded in the prior year, although gross margins remain strong, while revenue in the Rest of the World grew strongly compared with the same period last year. While it is not clear yet the extent of the shortfall in China, it is not helped by comparison with a particularly strong prior year figure that reflected a favourable combination of industry structural changes and restocking of the pig herd after the ASF epidemic together with changes in regulations for use of antibiotics in feed.
ECO should be able to give more colour on its assessment of overall trading in FY23 with its forthcoming results, which should at least remove the uncertainty that is presumably depressing its shares. With cash at the last balance sheet date of almost £23m, its EV currently stands at £45m. Thus, based on known FY22 figures, EV/sales ratio is currently 0.54 and its EV/EBITDA at 6.9 – both very low by any standards and certainly the norms of the animal health sector.
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