Advanced Medical Solutions looks to M&A for growth

Tissue-healing specialist Advanced Medical Solutions (AMS) knows the dangers of a highly concentrated product portfolio all too well. A lower pre-tax profit figure for 2023 was almost entirely down to US destocking of its LiquiBand skin adhesive franchise. 

The issue was flagged by the company midway through the year, and management rapidly implemented a new route-to-market strategy that involved renegotiating hospital distribution agreements. According to the group, the plan “is delivering accelerated growth expectations” in the year to date.

In any case, Advanced Medical’s North American woes were offset by a strong performance elsewhere in the world. Revenue in its surgical business – of which LiquiBand is a key part – was ultimately up 6 per cent by 31 December.

Things were not quite so rosy in the company’s other division, Woundcare, however, where pricing pressures and reimbursement issues drove sales down by 5 per cent to £47mn.

Management has since restructured the unit and put cost control measures in place to try to turn its fortunes around. Perhaps the most promising announcement made on the day of the company’s full-year results was the proposed acquisition of Peters Surgical, a provider of surgical sutures. 

The €141mn (£120mn) transaction is due to be completed at the end of June. Advanced Medical estimates that the purchase will deliver “high single-digit earnings accretion” in the first full year of ownership, which could further boost shares. 

The stock is still trading below levels seen prior to the LiquiBand snag, but FactSet broker consensus still puts the group’s full-year price/earnings multiple at more than 20 times. We think that’s a bit pricey given the group remains in a state of flux. Hold.

Last IC view: Hold, 187p, 20 September 2023