Following last October’s profit warning, modest organic revenue growth of 2.3 per cent offered some respite for ConvaTec's (CTEC) investors. Indeed, this figure slightly exceeded management’s 1-2 per cent forecast range, while operating profits were 61 per cent to the good at £248m. The improvement was largely down to a reduction in administrative expenses, but that was enough to ignite a mini-rally, sending the shares up nearly 8 per cent.
As flagged in the fourth quarter, the group’s two largest segments – advanced wound care and ostomy care – suffered from delays after production lines were relocated from the US to the Dominican Republic. These supply constraints have now been resolved, but backorders and lost orders in ostomy will feed through to the first half of 2018. Still, bosses anticipate 2.5–3 per cent organic revenue growth for the full year. For analysts at Numis, this could be an “ambitious target” given the supply issues and competitive pressures. It may take some time before operational improvements translate into enhanced margins.
ConvaTec has also decided to “increase targeted investment”. In the longer term, this may enhance its competitive advantage, but it will lower the adjusted operating margin by as much as 200 basis points in 2018, to a range of 24-25 per cent.
Prior to meeting with management, Numis forecast pre-tax profit of $402.5m and 17.7ȼ EPS for the December 2018 year-end, up from $371m and 16.3ȼ.
| CONVATEC (CTEC) | ||||
| ORD PRICE: | 210p | MARKET VALUE: | £4.1bn | |
| TOUCH: | 210-211p | 12-MONTH HIGH: | 349p | LOW: 182p |
| DIVIDEND YIELD: | 1.9% | PE RATIO: | 37 | |
| NET ASSET VALUE: | 128ȼ* | NET DEBT: | 100% | |
| Year to December | Turnover ($bn) | Pre-tax profit ($m) | Earnings per share (ȼ) | Dividend per share (ȼ) |
| 2013 | 1.70 | -47 | na | nil |
| 2014 | 1.73 | -100 | na | nil |
| 2015 | 1.65 | -110 | -7.0 | nil |
| 2016** | 1.69 | -126 | -15 | nil |
| 2017 | 1.76 | 164 | 8.0 | 5.7 |
| % change | +5 | - | - | - |
| Ex-div: | 5 Apr | |||
| Payment: | 17 May | |||
| *Includes intangible assets of $2.56bn or 168ȼ per share**Convatec's IPO took place in October 2016 £1=$1.41 | ||||
