Advanced Medical Solutions returns to growth

An unfortunate by-product of the pandemic was the widespread delays to elective surgery as hospitals, along with the broader healthcare system, converted themselves into a covid treatment service. The impact in 2020 was calamitous for Advanced Medical Solutions (AMS) as demand for its broad range of wound care products fell away precipitously. Now that countries are tiptoeing away from covid restrictions and the waiting lists for surgery are being tackled, the opposite, and positive, extreme was clear in these results.

The turnaround was most evident in the surgical business where revenues staged a notable 34 per cent recovery to £64.6mn during the year. Over at wound care, the same pattern of normalisation of demand also helped underlying sales to recover, with a 23 per cent increase to £44mn. The company’s overall revenues also benefited, in comparison with 2019, from a £6mn uplift from acquisitions completed during that timeframe. Acquisitions continued this year as AMS added to product marketing ability through the purchase of Austrian company AFS Medical for a total consideration of €6mn (£5bn), with the first contribution to sales of €4bn expected in 2023.

Aside from the unpredictability of raw materials costs, the general impression is that AMS has managed to keep a lid on excess expenditure. For instance, it booked no exceptional charges in the year and, while R&D spending was £1.4mn higher at £9.3mn, its total as a proportion of sales actually fell as revenues ramped up. General expenses were essentially flat at £37mn, with much of the change due to changes in forex hedges.

While AMS managed to ride out the worst of the pandemic, the uncertainty around global supply chains and raw material prices continues to have a direct impact on the company, which has resulted in longer delivery times for some of its customers. AMS also updated on the state of its legacy business in Russia. Management said it was reviewing the business and estimated that it contributes about 1 per cent to operating profits.      

Advanced Medical Solutions has always been a reliable share in most types of market because of the defensive nature of its core business. With the balance sheet looking rock-solid and an ability to adjust its pricing levels, it comes as no surprise that the shares rate at two and a half times book value. That leaves the price/earnings ratio at 27 times Numis’s forecasts for 2022 looking distinctly on the high side and we would recommend waiting for a better entry point. Hold.   

Last IC view: Buy, 261p, 15 Sep 2021