(News Bulletin 247) – The veterinary laboratory reported a slowdown in its growth in the third quarter, with a destocking effect in the United States which was greater than analysts’ expectations. Despite everything, Virbac maintains its annual objectives.

In mid-September, Virbac pleased the market by announcing solid half-year results unlike its competitor Vetoquinol which revealed a lackluster first half, accompanied by unclear prospects.

But in the space of a short month, investors’ perceptions of the Carros-based group changed, which therefore reported a slowdown in its growth in the third quarter. This drop in speed is sanctioned by the market, the title of the veterinary laboratory returning 8.60% this Friday, which constitutes the largest drop in the SBF 120.

A clear slowdown in activity

Between July and September 2024, Virbac achieved a turnover of 339 million euros, up 7.7% year-on-year in published data compared to the same period of 2023. At exchange rate and constant scope, growth increased by 3.4%.

This level of growth on a comparable basis marks a clear deceleration compared to previous quarters (+13.1% in the second quarter and +9.7% in the first quarter). The slowdown in growth “was expected but to a lesser extent”, says Oddo BHF, which for its part was counting on organic growth of 5.4% in the third quarter.

Virbac explains that this quarter’s performance suffered from an unfavorable base effect. The group recalls that its activity recorded a strong rebound in the third quarter of 2023 following two unfavorable one-off effects (limitation of production capacities for dog and cat vaccines and cyber attack which occurred in June 2023).

By geographic region, North America suffered the blow, with turnover down 6% at constant exchange rates and scope. The group’s activity in the region was mainly penalized by a temporary destocking effect at one of its distributors. Which “surprises a little”, notes Oddo BHF.

Just like activity in the “Pacific” region, which recorded a marked drop of -25.4% at constant exchange rates and scope. Virbac explains that sales in the region were penalized by an unfavorable economic situation in Australia under the anticipated effect of climatic and macroeconomic factors restricting the livestock market.

“Fortunately, over the period, Europe, predominant in the mix (40% of 2023 turnover), maintains sustained growth (+11.8% at constant exchange rates and scope) in continuity with the first half,” says TP ICAP Midcap.

Annual objectives confirmed

Despite slow summer activity, Virbac confirms its outlook for the year 2024, noted for the first time last July. The company forecasts revenue growth at constant rates and scope of between 7% and 9%.

“This growth forecast implies a fourth quarter of around 4.5-5%, which seems, on the one hand, realistic to us given the momentum (dynamic, editor’s note) specific to Virbac and the market (price/volumes), but not really surpassable given the organic performance of the third quarter, unless we see a restocking in the United States”, estimates Oddo BHF.

“The annual guidance (the outlook, editor’s note) is however maintained and given credibility by the nine-month sales and the results of the first half,” says TP ICAP Midcap.

Still for 2024, Virbac is also counting on a ratio of “current operating income before amortization of assets resulting from acquisitions” (adjusted Ebit) to turnover of around 16% at constant exchange rates.

The contribution of recent external growth operations is still expected to be around 5.5 percentage points on turnover growth with a slightly positive impact on its profitability. Thus, revenue growth is expected between 12.5% ​​and 14.5% at actual scope and constant exchange rates.

Virbac is also optimistic about its cash position, which should improve by 60 million euros at the end of December 2024. This objective excludes acquisitions.

“Taking into account the ‘upside’ (upside potential) of 7% that we calculate (price target unchanged at 414 euros) and with base effects becoming – for a few quarters no doubt – more demanding, we withdraw the value from our European Midcaps conviction list, after a decent contribution (around +17%)”, concludes Oddo BHF, which maintains its recommendation of “outperform” on the file.