True to form, the company's latest trading statement reassured shareholders that they can look forward to another year of strong growth both in Ireland and in the UK. United Drug has also indicated that it will make further acquisitions in the UK in the near future to beef up its contract packaging and distribution business.

United Drug said its firsthalf profit rose more than 10% and growth will continue in the second half. "We should be able to have a profit growth of at least 10% 12%, " said the company's finance director Barry McGrane.

A recent analysis by Davy Stockbrokers highlighted the fact that United Drug has outperformed the Iseq in seven of the last eleven years and the company is in the midst of an expansion programme aimed at continuing that impressive record.

United Drug is looking for several acquisitions for its medical and scientific division in the UK, according to McGrane. "It's a very fragmented market, " he said.

United Drug spent 40m over the last six months of 2005 adding specialist packaging company TD Packaging, laboratory equipment supplier Presearch and contract sales firm In2focus.

Merrion Stockbrokers' analyst Robert Brisbourne said the fact that United Drug is signalling such solid earnings for the first half indicates that those acquisitions are performing in line with the company's expectations and are "on target to deliver their earn out numbers".

The expansion in the UK is part of the company's diversification strategy. In the five years since chief executive Liam Fitzgerald took over from former United Drug boss Jerry Liston, the company has deliberately sought to reduce its reliance on drug wholesaling, traditionally the backbone of its business.

Wholesaling revenue now accounts for only 40% of United Drug's profit. In addition to its wholesaling business.

United Drug provides sales teams and distribution facilities to companies such as Beiersdorf, the German company which manufactures products such as Nivea skin creams. Contract sales and packaging are attractive avenues for United Drug to explore as they reduce the risk that its wholesaling margins will be eroded by drug pricing agreements.

With governments in both the UK and Ireland under pressure to reduce the prices of prescription medication United Drug could potentially lose out on wholesaling revenue. A four year agreement between pharmaceutical companies and the Irish government on the price paid for drugs supplied to the health service expired last September and negotiations on a new agreement are imminent. If price reductions mean pharmacists take a hit on retail margins, the pain will be passed on to wholesalers such as United.

The performance of the United Drug's UK distribution wing following a similar review in that market, however, suggests that the company's business model is efficient enough to minimise the hit from any downward pressure on drug prices.

According to Robert Brisbourne United Drug has borne up well following a new pricing agreement in the UK.

The agreement, which dropped the prices of a number of best-selling treatments, was concluded mid way through last year. Brisbourne sees it as a good sign that United Drug's trading statement and last month's AGM statement remain upbeat and that the company is continuing to see doubledigit growth in such an environment.

United Drug will face a similar price review in Ireland later this year. With the company saying it expects the strong trading performance to continue across the second half it seems United Drug is not overly concerned.

Goodbody Stockbrokers analyst Ian Hunter has modelled the likely impact of a new pricing agreement on United Drug. In a recent research note on the company Hunter said he believes that in the worst-case scenario United Drug would take an 8% hit to its annual wholesale revenue. This, however, would only hit the company's overall revenue estimates by 1.5% or 800,000. Hunter said last week's trading statement gives Goodbody "comfort in the numbers" it uses in its model.

Goodbody rates the shares a buy. Merrion, though, merely has an "add" recommendation on United Drug.

Robert Brisbourne notes that at their current level of 3.80 the shares are rated at 18 times 2006 earnings. "This is above the average historical trading range and we feel the scope for re-rating is therefore limited. That said, United Drug is performing well and continues to have a good medium term growth outlook due to its strong positions in growth markets, " he said.