Bottom Line: Amersham's growth takes it into testing phase
Your support helps us to tell the story
From reproductive rights to climate change to Big Tech, The Independent is on the ground when the story is developing. Whether it's investigating the financials of Elon Musk's pro-Trump PAC or producing our latest documentary, 'The A Word', which shines a light on the American women fighting for reproductive rights, we know how important it is to parse out the facts from the messaging.
At such a critical moment in US history, we need reporters on the ground. Your donation allows us to keep sending journalists to speak to both sides of the story.
The Independent is trusted by Americans across the entire political spectrum. And unlike many other quality news outlets, we choose not to lock Americans out of our reporting and analysis with paywalls. We believe quality journalism should be available to everyone, paid for by those who can afford it.
Your support makes all the difference.AMERSHAM is an exemplary company by the standards of Stephen Dorrell, the Financial Secretary to the Treasury; for the past four years it has determinedly used its soaring earnings to build up its balance sheet rather than to satisfy the frivolous desires of its shareholders.
As a result dividend cover has gone from 1.4 times earnings in 1991 to just over three times - which has become a minimum level of cover the company considers acceptable.
That is at a time when many other healthcare-related companies have been reducing their cover as they transform themselves into yield stocks - cover at Glaxo, the drug sector giant, now stands at 1.8 times earnings but yields more than 5 per cent, compared with less than 2 per cent for Amersham, for instance.
The reason is simple: unlike the big drug groups, Amersham's niche products are relatively safe from the winds of change blowing through the industry. It has no need to bribe its shareholders to ensure that their nerves hold steady.
That means that for investors the only thing that matters is whether Amersham can make better use of its money than they can.
So far the group has to be given the benefit of the doubt. Earnings have almost tripled over the past four years, and there seems little doubt but that 1994's pre-tax results will be bettered next year - analysts expect this year's pounds 43.5m, up from pounds 26.3m in 1993, to rise to pounds 52m next year.
To date, Amersham has invested well in research and development and sensible acquisitions, and its products have tantalising potential.
Amersham now enters an even more testing phase. Until now it has been paying down debt; from here on in the cash will begin to build in its balance sheet. The more successful Amersham becomes, the greater the task it sets itself when it comes to using that money wisely.
At a premium of 25 per cent to the market the shares sound expensive. But the group is one of the few growth prospects in the sector.
(Graph omitted)
Join our commenting forum
Join thought-provoking conversations, follow other Independent readers and see their replies
Comments