- Inventory build-up
- Flat profits
Advanced Medical Solutions (AMS) has had a busy September. Early in the month the wound care company downgraded its full-year forecasts, complaining of reduced royalty income from one of its patent licensing agreements. Destocking in the US has also hit demand for LiquiBand, a type of skin adhesive and the group’s most successful product line. A couple of weeks later, however, management announced a promising new commercialisation agreement relating to that very brand.
The company’s interim results reflect the tumult. While revenue edged up by 5 per cent to £63.1mn on a constant currency basis, profit margins narrowed due to the “adverse product mix”. As such, adjusted profit before tax plateaued at £13.8mn.
A closer look at the group’s different divisions shows LiquiBand to be the main problem. Within the Surgical Business unit, all sections grew sales apart from “advanced closure” – ie Liquiband, which saw US revenues drop by 27 per cent. This was partly – but not fully – offset by strong demand elsewhere in the world.
Management stressed that, since June, “very good” progress has been made with all US LiquiBand distribution agreements and is “highly confident that the new route-to-market strategy will be fully operational and driving accelerated growth by the end of 2023”.
There are some potential red flags, however. Inventory levels, for example, are up by 40 per cent year-on-year at £31.8mn. Advanced Medical said this was planned and designed to boost resilience in the face of supply chain problems. However, given the recent demand uncertainty there is a risk this will backfire. The group’s cash position has also worsened as a result of the stock increases, acquisition costs, and a build up in trade receivables.
Analysts at Panmure Gordon and Peel Hunt both noted that Advanced Medical appeared more positive in these results than it had at the start of the month. However, we would like much more visibility on the crucial LiquiBand product line, and how stock levels will fare in the longer term. Hold.
Last IC View: Hold, 245p, 15 Mar 2023
| ADVANCED MEDICAL SOLUTIONS (AMS) | ||||
| ORD PRICE: | 187p | MARKET VALUE: | £406mn | |
| TOUCH: | 186-187p | 12-MONTH HIGH: | 305p | LOW: 166p |
| DIVIDEND YIELD: | 1.2% | PE RATIO: | 21 | |
| NET ASSET VALUE: | 112p* | NET CASH: | £60mn | |
| Half-year to 30 Jun | Turnover (£mn) | Pre-tax profit (£mn) | Earnings per share (p) | Dividend per share (p) |
| 2022 | 58.3 | 12.3 | 4.47 | 0.64 |
| 2023 | 63.1 | 11.8 | 4.12 | 0.70 |
| % change | +8 | -4 | -8 | +9 |
| Ex-div: | 28 Sep | |||
| Payment: | 27 Oct | |||
| *Includes intangible assets of £135mn, or 62p a share | ||||
