AMS recovers as elective surgeries rise

The main half-year reporting season has highlighted the contrasting impact of the pandemic, both on individual companies and sectors. By midway through 2020, Advanced Medical Solutions (AMS) had seen demand for its product range fall by around a fifth due to a sharp decline in elective surgeries performed by the NHS.

The prioritisation of coronavirus treatments stifled sales for the group’s surgical and advanced woundcare products, though figures for the latest half-year suggest that the situation has improved somewhat since the height of the pandemic, with adjusted profits more than doubling to £12.4m and net operating cash flow increasing by 55 per cent to £13.7m. Revenue at the Surgical Business Unit increased by 42 per cent through to June, but demand remains below pre-pandemic levels as hospital access remains an issue.

It’s not all about performance metrics. And, unfortunately, the clinical situation got lost in the panic over Covid-19. An additional £0.6m was allocated to R&D in the period under review, bringing the total for the half-year to £4.4m. And the group has been able to drive developments projects despite wider disruption. The US premarket approval process for the LiquiBandFix8 product is moving ahead, with FDA filing for the device on track for next year. Meanwhile, the LiquiBand XL 510(k) application was submitted during the period with approval expected by the end of 2021.

Preparatory measures meant that AMS wasn’t unduly affected by the UK’s departure from the European Union, but the group has recently experienced supply chain disruptions due to haulier shortages. Management has not identified any material impact, though it is monitoring the situation, while reviewing inventory levels.

Liquidity hasn’t been an issue for AMS throughout the pandemic and the balance sheet remains in good order. Receivables increased by £1.5m, a reflection of higher sales, while inventory decreased to 5.5 months of supply, against 6.7 months at the 2020 half-year.

The group expects that elective surgery volumes will continue to recover through the remainder of this year and into 2022 despite the spectre of the Delta variant, though the situation remains fluid due to the threat of government intervention. And the group certainly isn’t immune to increased freight and raw material costs. Management does make the point that the pace of recovery is difficult to predict, as volumes are governed by which surgical procedures are given preference. Uncertainties linger, but we still think they are outweighed by the long-term clinical promise. Buy.  

Last IC View: Buy, 232p, 17 Mar 2021