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No rapid recovery at Advanced Medical Solutions

Margins are moving in the right direction at the wound care specialist, but it's too early to give it a clean bill of health
September 14, 2022
  • FDA recently approved new LiquiBand XL surgical glue, opening up a $60mn market
  • Inflation hits margins in the company's surgical business unit

Hospitals around the world are struggling to return to their pre-pandemic operational norms. Staffing issues and backlogged appointments are still all too common, especially in the UK, which is by far the largest market for wound care manufacturer Advanced Medical Solutions (AMS).

In its half-year results, the company notes that hospital capacity remains restricted in many of its key markets and that the backlog of patients awaiting elective surgery is at record levels. This means that demand for its surgical products – such as tissue adhesives, sutures and biosurgical devices – has continued to be suppressed. 

AMS’s surgical business unit nonetheless achieved year-on-year growth of 18 per cent on a constant currency basis as distributors stockpiled its products and the company increased prices. The division’s adjusted operating margin fell, however, from 32.4 per cent in the first half of 2021 to 29.8 per cent in the same period this year. The company said this was due to continued investment in research and development, as well as the margin-diluting impact of inflation.

May saw US regulators approve the use of LiquiBand XL, a surgical glue intended for use on large wounds. The company says the product has unlocked a new $60mn market and expects it to drive future growth. In the second half of this year, AMS intends to apply for FDA approval for another product in the same range, LiquiBandFix8, which is used to fix hernia meshes.

AMS also acquired Austria-based AFS, a specialist distributor of its Fix8 solution, in April. The new addition will “strengthen our ability to further penetrate into existing markets”, according to the firm.

Meanwhile, revenues and margins both improved in the company’s wound care segment, which was responsible for £22.4mn in sales in the first half. New product approvals, a company-wide revenue uptick and a raised dividend could indicate that AMS is firmly back on track after the pandemic, but brokers aren’t necessarily convinced.

“Management is confident in meeting market expectations and while our estimates are unchanged, we remain cautious due to stocking dynamics, cost pressures and an uncertain elective [surgery] recovery,” wrote Numis analysts in a note. 

In short, the path to recovery for AMS is still fraught with potential setbacks. The emergence of a new Covid wave, for instance, could cause further complications in hospital settings. With shares trading at 14 times EV/Ebitda, the company appears fairly valued for now. Hold.

Last IC View: Hold, 289p, 16 Mar 2022

ADVANCED MEDICAL SOLUTIONS (AMS) 
ORD PRICE:274pMARKET VALUE:£ 593mn
TOUCH:270-275p12-MONTH HIGH:347pLOW: 251p
DIVIDEND YIELD:0.7%PE RATIO:32
NET ASSET VALUE:102p*NET CASH:£66mn
Half-year to 30 JunTurnover (£mn)Pre-tax profit (£mn)Earnings per share (p)Dividend per share (p)
202150.211.24.150.58
202258.312.34.470.64
% change+16+10+8+10
Ex-div:29 Sep   
Payment:21 Oct   
*Includes intangible assets of £90mn, or 42p a share