Changing outlook for Tristel

Tip Updates 

Changing outlook for Tristel

BUY

Tip Update: Buy at 288p

Tip style
GROWTH
Risk rating
HIGH
Timescale
LONG TERM
Our previous tip
We said BUY at 73.5p on 23 Apr 2015
Tip performance to date
+291%

Disinfecting the hospitals of Europe, Australia and Asia has proved very lucrative for Tristel (TSTL). Overseas revenue leapt 43 per cent in the year to June 2017, meaning non-UK sales now make up just under half of the overall top line, up from 39 per cent 12 months ago.

Changes are also brewing in the revenue contribution of various products. Tristel is reducing sales of generic alcohol and ammonium disinfectants in favour of chlorine dioxide products that have no competition worldwide. Chlorine products have risen to 82 per cent of sales.  

This changing structure stumped the animal health division and slowed sales in the domestic market, but Tristel continues impress financially. After stripping out share-based payments, pre-tax profit rose 24 per cent to £4.1m and operating cash inflows remain at over 100 per cent of operating profit.

With these characteristically strong numbers, investors may have been disappointed not to see a special dividend. But management has other plans for its excess cash. In 2018, the group is likely to acquire another overseas commercial platform to sell products directly in more countries. Bringing distribution in house in Australia has doubled the margin there. Before considering the potential for earnings-enhancing acquisitions, broker finnCap has forecast pre-tax profit of £4.4m, giving EPS of 8.3p for the June 2018 year-end (from £4m and 8.1p in FY2017).

TRISTEL (TSTL)   
ORD PRICE:288pMARKET VALUE:£123m
TOUCH:280-295p12-MONTH HIGH:323pLOW: 143p
DIVIDEND YIELD:1.4%PE RATIO:36
NET ASSET VALUE:37p*NET CASH:£5.1m
Year to    TurnoverPre-taxEarnings Dividend **
30 Jun(£m) profit (£m)per share (p) per share (p)
201310.6-1.8-3.20.40
201413.51.83.31.62
201515.31.85.42.72
201617.12.65.03.33
201720.34.08.14.03
% change+19+53+61+21
Ex-div:16 Nov   
Payment:15 Dec   

*Includes intangible assets of £1.7m, or 3.9p a share

**Special dividends of 3p a share paid in both Aug 2015 and 2016

IC View

Investors have high expectations for Tristel and the shares trade on a toppy 35 times forward earnings. But with so many more opportunities for growth, we see no reason to remove our buy call.

Last IC View: Buy, 254p, 3 Oct 2017

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