ConvaTec in good shape after IPO

ConvaTec operates via four franchises: advanced woundcare, ostomy, continence and infusion. All of the franchises are performing well, particularly the advanced woundcare division, which contributed a third of overall revenue in 2016, saw the launch of two new surgical dressing products send constant currency revenue up 6.5 per cent.

But it's the ostomy franchise that's attracting attention. At last year's IPO, management flagged this division as an area of focus. The total addressable market for ostomy products is currently worth $2.4bn (£1.95m) and is expected to grow at a maximum rate of 6 per cent per year until 2020. To capitalise on that, ConvaTec recently acquired Netherlands-based ostomy specialist EuroTec.

Digging into the numbers reveals just how much ConvaTec has benefited from its recent stock market listing. The £1.5bn raised last year - which made it the biggest UK IPO of 2016 - alongside a new $1.8bn credit facility has allowed the group to refinance its debt, which in 2015 had generated $304m in finance costs. Strip those and currency transaction expenses out, and ConvaTec is actually a profitable company.

The IPO has also extracted the group from its private equity roots, which added $85.9m in share-based compensation expenses in 2016. Other one-off costs included the $28m IPO charge and asset writedowns of $7.9m. Exclude these, and group adjusted operating profit rose 8 per cent to $472m. This was thanks to the margin improvement programme launched at the end of 2015, which delivered a 130 basis point gross margin benefit in the period. Group adjusted earnings of 13ȼ a share beat Peel Hunt's expectations of 9.2ȼ and in the year ending December 2017, the broker expects adjusted EPS to reach 18.3ȼ.