Tristel on a high as US expansion begins

Infection prevention specialist Tristel (TSTL) was granted regulatory approval to sell its products in the US in June – a milestone hailed by management as its “enormous achievement of the year”. Investors seem inclined to agree (given that its shares are up by more than 22 per cent across the past six months).

The nationwide launch of the group's Tristel ULT foam, which is designed to disinfect ultrasound equipment, is set to begin this month. Broker Investec expects the solution to gain a 35 per cent share of its US addressable market when it reaches peak sales in FY2029. 

The company itself is evidently feeling confident and has changed its dividend policy to reflect this bullish outlook.

Management has elected to fold last year’s special dividend into the final dividend and has moved to a progressive policy that will see its shareholder payouts grow at least 5 per cent annually. It previously aimed to provide dividend cover of at least two times. Across the year to the end of June, Tristel said that the negative impacts of both Brexit and Covid-19 receded, allowing it to resume top- and bottom-line growth.

The business is now aiming to grow sales at a rate of 10-15 per cent as an annual average over the next three years, while achieving an Ebitda margin of at least 25 per cent. This looks achievable given the recent success of its medical device decontamination division, which was up 21 per cent in sales terms in FY2023.

Its other business, surface decontamination, did not take off in the same way, with revenue ticking up 4 per cent year on year.  But with the shares trading close to the 52-week high of 450p, the question facing prospective investors is whether there’s any potential upside to be realised ahead of the release of US sales figures. For their part, Liberum analysts aren’t sure.

“While we like Tristel and we think it has a significant opportunity in the US, a lot of the upside is already priced into the shares,” they said. “And investors will have to wait until February’s interim for real evidence with regard to US uptake, which will be the key to the shares performing.”

Tristel is currently trading on 28 times its projected forward earnings for FY2024, according to FactSet broker consensus. While there’s no doubt the business has potential, we think this is slightly too pricey given that its US expansion is still in its early stages. We downgrade to hold for now. 

Last IC View: Buy, 340p, 20 Feb 2023