Monday 20 October 2014

Syringe maker could be shot in arm for investors

Dr John Lynch

Published 22/07/2013 | 05:00

The late Minister of State, Fergus O’Dowd; An Taoiseach, Enda Kenny; and Cormac Reynolds, Director, Diabetes Care Manufacturing, BD in Ireland, at the announcement of 28 new jobs at BD’s Drogheda plant on the Donore Road last year
The late Minister of State, Fergus O’Dowd; An Taoiseach, Enda Kenny; and Cormac Reynolds, Director, Diabetes Care Manufacturing, BD in Ireland, at the announcement of 28 new jobs at BD’s Drogheda plant on the Donore Road last year

A corporation that serves a growing need in society is more than just another way to create profits – it can be a sizeable contributor to public happiness.

This rather wonderful piece of philosophy occurred to me when I was researching the corporate life of Becton Dickenson (BD), the American company that has long ties with Ireland. BD was one of the first companies in the world to produce syringes for insulin injection for diabetes and because of that alone it has greatly enhanced the lives of countless people around the world. Indeed, the fight against diabetes continues to be one of the great challenges for the modern world.

Latest figures show that there are some 300 million suffering from diabetes and it shows no sign of lessening.

The year 1962 was not just the last time when Dublin held the Leinster Senior Hurling title, it was also an important year for BD – for that was the first year it was quoted on the New York stock exchange and it also marked the opening of its first Irish manufacturing plant in Drogheda. By 1969 it had a second facility in Dun Laoghaire that's still open.

Today, the New Jersey-based company operates in no less than 50 countries around the world, with 30,000 employees.

It's also a big player in Europe, with manufacturing plants in Germany, Spain, Italy, UK, Hungary, and has its European headquarters at Maylay, France.

In 1981 sales were $1bn, a decade later they had doubled to $2bn. Today turnover is $7.7bn (€5.86bn).

The company has three divisions; BD Medical, BD Diagnostics and BD Bioscience. BD Medical is the largest division having also three sub divisions: surgical, pharmaceutical and diabetes. It has a product range of needles and syringes, catheters, insulin syringes, surgical blades, scalpels and drug delivery systems. BD Diagnostics has two sub-divisions; pre-analytical and diagnostic systems. It is a global leader of systems for specimen collection, blood collection, cancer diagnostic products and testing systems for sexually transmitted diseases.

The smallest division, BD Bioscience, is a world leader that focuses on imaging systems, cell sorters, analysers and kits for cell analysis.

In 2012 the medical division had revenue of $4.1bn with surgical systems accounting for approximately half of this figure and the diabetic section having sales of approximately $1bn.

The diagnostic division had a turnover of $2.5bn divided equally between pre-analytical and diagnostic systems. Finally, the bioscience division accounts for $1.1bn for group turnover.

Examination of sales per region show the US accounts for 43pc of group sales followed by Europe on 30pc and emerging markets having 23pc of sales. In 2012 sales in China grew by 25pc, and the company sees opportunities in Latin America, India and Vietnam.

BD is trading at around $100 per share with a market cap of $19bn. The market value of the company is 16 times of predicted earnings and 4.2 times book value.

Group profits at $1.17bn in 2012 have declined slightly but it's in a strong financial position, its cash flow from operations exceeding €1.7bn. BD has a good payout record, and has stepped up dividends for 40 consecutive years.

Some observers fancy the shares because the US Food and Drug Administration has approved a new BD product that simplifies the traditional injection sequence.

Others are cautious, pointing out that BD's primary driver, its safety needles, could be going ex-growth.

They also point to the boost the price got from annual $1.5bn buy-backs in the last two years.

I confess to be in the bullish camp, the company has good products, excellent brands, global reach, consistent dividends and a competitive advantage due to significant barriers to entry. From an investment viewpoint, BD is a dependably boring company – the type I like to invest in. However, a word of caution before rushing in to buy its shares – be mindful they are at a 10-year high.

Dr John Lynch is a former chairman of CIE. Nothing published in this section should be taken as recommendation, either implicit or explicit, to buy or sell any of the shares.

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