ConvaTec’s shares gain on half-year profit uplift

If healthcare is a defensive sector then medical technology is surely one of its more resilient corners, and the more practical a company’s focus, the better. ConvaTec (CTEC) does not produce a range of highly futuristic products – wound dressings and diabetic infusion kits are its bread and butter – but demand for these medical staples is usually robust.

Revenue growth in the first half was driven by the group’s advanced wound care division, which saw sales growth of more than 10 per cent. Performance in the division was enhanced by the integration of Triad Life Sciences (now called Advanced Tissue Technologies), which contributed to organic growth from April. ConvaTec acquired the US-based company, a specialist in burns and surgical wound care, last year. 

Elsewhere, the group’s infusion and continence care divisions both grew sales by more than 7 per cent in the first half. Management expects the overall operating margin to expand to at least 20.5 per cent on a constant currency basis this year.

In the longer term, the company is targeting an operating margin somewhere in the mid-20s. Investec analysts seem to think this is a wholly achievable goal. “We believe there is scope for further Ebit margin improvement as a result of both efficiency gains and new product launches,” they said in a note.

For its part, the market has also indicated that ConvaTec’s ambitions are credible, with the shares rising 6 per cent on the day of the results announcement. FactSet broker consensus puts the group’s forward price/earnings multiple at 19 times, which we think is fair given recent indications of accelerating growth. Buy.

Last IC View: Buy, 222p, 9 March 2023