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Synergy Health is back on track

SHARE TIP UPDATE: Sterile equipment specialist Synergy Health (SYR) is back on track thanks to a rising numbers of international contracts.
June 4, 2014

Sterile equipment specialist Synergy Health (SYR) is back on track. Despite a lack of improvement in economic conditions, particularly in Europe, a strategy to internationalise the company is paying off.

IC TIP: Hold at 1,303p

Synergy's target to generate 50 per cent of revenues outside of the UK and Europe is looking more realistic, with a quarter of group revenues now coming from the Americas, Asia and Africa. Specifically, high-value contracts in the US, coupled with restructuring efforts in Europe, contributed to a 50 basis point improvement in operating margins to 16.1 per cent and a 13 per cent rise in pre-tax profit to £43m.

But the linen business in the Netherlands, which has long been in a state of decline, continued to impact growth in Europe. Sales at the Dutch unit fell 11 per cent at constant currency, masking otherwise positive results in Europe, where a better mix of applied sterile technologies (AST) pushed operating profit up 20 per cent to £20m.

A slew of new contracts worth a collective £43m are planned for the next 16 months and the post-period end acquisition of Bioster Group for €29m (£24m) is expected to win new AST business in Italy and eastern Europe.

Broker Investec Securities expects pre-tax profits of £61m for the current financial year, giving EPS of 76.2p (from 70.6p in 2013).

SYNERGY HEALTH (SYR)

ORD PRICE:1,303pMARKET VALUE:£767m
TOUCH:1,302-1,306p12-MONTH HIGH:1,437pLOW: 991p
DIVIDEND YIELD:1.7%PE RATIO:23
NET ASSET VALUE:584p**NET DEBT:43%

Year to 31 MarTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201028624.540.613.2
201128736.752.115.8
201231232.544.518.0
201336138.053.020.7
2014*38042.957.822.8
% change+5+13+9+10

Ex-div: 6 Aug

Payment: 4 Sep

*For the year to 30 March

**Includes £265m of intangible assets, or 450p a share