Alliance Pharma has adopted a buy-and-build strategy to evolve through a series of 28 acquisitions into a profitable, cash generative, specialty pharma business. The acquisition of part of the dermatology and woundcare products from Sinclair IS Pharma was transformational, broadly doubling the size of the company at a stroke, providing a more internationally-oriented business with the potential to exploit growth opportunities of its existing products. Moreover, it has made the enlarged group a more attractive and credible partner for in–licensing and M&A opportunities.

Market Data:

Price (p): 311.5

Mkt Cap Ord (£m): 114.8

Mkt Cap Pref (£m): 58.9

Sector: Agriculture

Valuation: Currently REA is trading at a discount of circa 13% to its listed peer group (excluding Wilmar). This looks anomalous on the basis of asset quality and rising operational efficiencies. It also does not take into account a possible valuation of circa $30m for the electricity operations which began to generate revenues during 2015.

Risks: Agricultural risk, commodity price risk and country risk are constants of palm oil production. A bias to the use of debt finance means that the net debt to equity ratio is currently estimated at 65.1% for end 2016. REA has stated its intention to rebalance debt with permanent capital. Investors will be watching for progress on this front.

Investment summary: REA is developing and operating high quality plantation assets to produce sustainable palm oil. Against a background of tightening land availability in Indonesia, REA reports that it is in discussion with various parties about the sale of a strategic stake in the Indonesian operating company REA Kaltim.