Alliance PharmaBranded generic medicines group Alliance Pharma is reaping the benefits of its 2007 restructuring and strategy shift and offers investors insulation from downturn.

According to CEO John Dawson, the cash-generative counter – behind niche cough suppressant Pavacol-D, dermatology brand Hydromol and the Nu-seals low-dose aspirin among other products – is running much leaner and is now focused ‘more on the trading rather than the (product) development side of the business’.

Now, ‘we have a good portfolio of brands that are in demand’, while the fact that sales are predominantly prescription driven and targeted at national health services means the business should remain largely unaffected by recession. ‘If he has a patient that needs treatment, a doctor tends not to consider the wider economy,’ explains Dawson.

Alliance Pharma recently reported strong second-half trading for 2008, during which it enjoyed positive sales growth ‘across a number of brands’. Turnover of £11.9m was £2m up on the first half, while calendar-year sales were 20% ahead of 2007 at £21.8m. The end result is that full year ‘pre-tax trading profits’ are expected to be ‘not less than £2.3m’, significantly ahead of the £2m forecast by analysts.Now profitable and generating cash, the historically heavily leveraged company is also paying down its manageable levels of long-term debt.

Alliance Pharma, which announced a swing from losses of £900,000 to pre-tax profits of £1m at the half year, is now forecast to grow profits from £2.3m to £2.9m in 2009, giving earnings of 1.31p and placing the shares on a miserly p/e of 3.3. We think the company, an erstwhile recommendation in which astute investor Nigel Wray recently upped his stake to 7.51%, is significantly undervalued.