ConvaTec grows sales against macroeconomic odds

Medical technology group ConvaTec (CTEC) has done what only a dwindling number of companies can in a contracting economy: beat consensus sales expectations. The firm’s revenue grew by 6.4 per cent on an organic basis in the first half of the year amid a recovery in demand for elective surgeries. 

The odds have been stacked against ConvaTec in recent months. Until the end of May, it operated a manufacturing facility in Belarus and maintained a sales team in Russia – both of which have been phased out in the wake of the war in Ukraine. As a result, the group expects to take $10mn-$20mn (£8.2mn-£16.5mn) revenue and $3mn-$5mn operating profit hits for the full year. It nonetheless confirmed its overall expectations remain in line.

ConvaTec’s best-performing division in the six months to the end of June was advanced woundcare, with $307mn in sales. In March, the company completed the acquisition of Triad Life Sciences, a US company that makes tissue-based wound coverings. It also announced its decision to withdraw from non-core hospital care activities, leaving it “almost entirely focused on higher-growth and more profitable chronic care markets”. 

Markets reacted positively to news of ConvaTec’s success in the first half, with the shares up almost 10 per cent. “We… believe ConvaTec’s portfolio of non-discretionary medical technologies for chronic life-long conditions and lower exposure to hospital staffing issues and elective backlogs make it one of the most attractive medtech holdings in the current environment,” wrote Numis analysts in a note.

With the shares trading at just under 14 times enterprise value to Ebitda, the company is better value than peers in the European medtech sphere (which have an average multiple of 16 times). Buy. 

Last IC View: Hold, 176p, 08 Mar 2022