- Cash profit rises 14 per cent to £6.4mn on 11 per cent higher revenue of £41.1mn
- Strong order book for current year
- Net cash of £9.3mn (13.6p a share)
Crawley-based Inspiration Healthcare (IHC:94p), a fully integrated medical technology company with a strong focus on the high-growth neonatal intensive care market, has delivered annual results slightly ahead of the raised guidance provided at the pre-close trading update (‘Hunting down lowly rated tech plays’, 22 February 2022). At the time house broker Cenkos Securities pushed through double-digit increases in its forecasts for both cash profit (to £6.2mn) and operating profit (£4.1mn).
Even though input costs (freight, energy and silicon chips) have been rising, as is the case in most industries, Inspiration’s gross margin increased by 1.5 percentage points to 50.2 per cent. This highlights the ability of management to manage the product portfolio and extract efficiencies to counter inflationary pressures. Equally important, the directors report a high order book and ongoing strong demand for the group’s products.
Two years ago, Inspiration acquired SLE, a designer and maker of ventilators for neonatal intensive care, and has been leveraging the group’s enlarged international distribution network – 87 per cent of SLE’s sales are export orders – and cross-selling opportunities across a much larger customer base. This has been a key factor behind the ongoing outperformance as has the launch of new products and greater penetration into overseas markets.
The group’s geographic revenue streams are worth considering at this juncture. Last year, more than half (57 per cent) of revenue was generated from overseas, thus creating a currency tailwind on export earnings given the recent weakness of sterling.
Admittedly, the shares succumbed to profit taking post results, slipping back from 112p to slightly below my last recommended entry point (100p). However, there is clearly value on offer here as net of cash the £64mn market capitalisation group is rated on a modest eight times Cenkos’s 2022 cash profit estimate of £6.9mn.
That’s a modest rating for a business operating in a fast-growing market segment. Indeed, the global market for neonatal ICU equipment is forecast to grow by 50 per cent to $9bn by the mid-2020s, driven by higher numbers of premature deaths, increasing complications at birth, improving healthcare infrastructure and rising global healthcare spend.
A new state-of-the-art facility, and investment in systems to improve sales conversion rates, provide the infrastructure needed to support management’s ambitions of delivering double-digit sales growth again this year. Cenkos is factoring in 12 per cent higher revenue of £46.1mn, a forecast well underpinned by the current order book. Medium-term buy.
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