Tristel sees international growth

As presaged in a summer-time update, Tristel’s (TSTL) full-year performance reflected the push-and-pull effects of the Covid-19 pandemic. On the one hand, the crisis dealt a £0.5m blow to the group’s medical-device decontamination sales – its main product portfolio. But on the other hand, revenues from its hospital surface disinfectant goods ticked up by £2m. Overall, during the March-to-June quarter – when the virus was at its peak in many regions – Tristel’s sales climbed by almost a third year-on-year to £11.8m.

The group said that the past few months had “provided an extreme stress test” for its manufacturing processes and supply-chain management, showing that it could satisfy demand at a time when other hospital suppliers were unable to do so. On top of record sales in each of its subsidiaries, Tristel also pointed to continued international expansion. While revenues in its largest market, the UK, edged up by 7 per cent during the year to 30 June, the balance has been gradually shifting overseas – the proportion of revenues generated abroad has climbed from 39 per cent in the 2016 financial year to 60 per cent today.

Specifically, sales in France tripled – albeit from a low base – to £1.8m, while China’s sales more than doubled to almost £0.5m. The group has yet to get sales off the ground in the US, but it is journeying towards a submission to the Food and Drug Administration (FDA) in order to obtain pre-market approval for its foam-based ‘Duo’ product.

Tristel spent £0.08m on work around its intended move into the US, down from £0.5m in FY2019. Overall, its investment into product development and testing stood at £0.4m – in line with the prior year – while it spent a further £0.1m on intellectual-property protection.

House broker finnCap expects adjusted pre-tax profits of £7.2m and EPS of 12.7p for the year to September 2021, up from £7.1m and 11.8p in FY2020.

Tristel paid £0.6m towards acquiring four-fifths of ‘Tristel Italia’ from its local management. But net cash still landed at £6.2m at the end of June, up from £4.2m, and the group remains debt-free - underpinning a decision to lift the dividend by just over a tenth. At 515p, the shares command a forward price-to-earnings (PE) multiple of 41 times. That said, Tristel believes that the pandemic will spur a longer-term trend towards better, more frequent cleaning practices, with hospitals choosing products that are the “most scientifically validated”. For now, buy.

Last IC view: Buy, 415p, 22 Jul 2020