Tristel: scrubbing up well

Hopefully, concerted efforts will stem the transmission of the novel coronavirus in the months ahead. But, even after this anxious and uncertain period, it seems fair to assume that consumers will maintain extra interest in good hygiene practices. Along with Tristel’s sturdy barriers to entry and strong financial track record, this should position it well to cope with increasing interest in hygiene products.

Besides, Tristel claims a significant competitive advantage. It says it is unique globally in using chlorine dioxide to disinfect medical instruments in hospitals. About four-fifths of group revenues pertain to this practice, which subjects the likes of endoscopes and ultrasound probes to deep, rapid cleaning. Meanwhile, using the same chemistry, Tristel has established a footing in hospital surface disinfection – as well as animal health and in contamination control for critical manufacturing environments.

The group’s economic moat is fortified by the fact that it has various regulatory approvals and a list of proven compatibility with hundreds of medical devices – with equipment manufacturers recommending it as their leading product of choice. These attributes would, arguably, be very difficult to replicate – especially given that Tristel’s expertise is backed up by legal protections. As of last June, it held 277 patents in 36 countries.

In the current climate, it is impossible to say whether analysts’ forecasts will change – regardless of how promising the company’s proposition looks. Still, Tristel has delivered a strong historical performance. Over the past three years, its annual revenue growth has compounded at 15 per cent, while underlying profit has grown at 16 per cent.  

The group’s numbers for the six months to December 2019 built upon this strong foundation. Revenues rose by more than a fifth to £14.6m, with underlying pre-tax profits up by a quarter to £3m. The dividend was also up 15 per cent to 2.34p – underpinned by net cash of £4.2m at the period-end even after Tristel paid £0.6m in July to buy the final 80 per cent of ‘Tristel Italia’.

Tristel’s results were also bolstered by contributions from its subsidiaries in Belgium, the Netherlands and France, which it bought in November 2018. Thanks to such acquisition activity, overseas sales increased by 30 per cent at the half-year stage – constituting 56 per cent of group revenues, up from 53 per cent a year earlier.

And there is, ostensibly, further growth to come from overseas. The group has been working on securing approval from the Food and Drug Administration in the US. That stateside opportunity constitutes “the main upside” for Tristel, according to fund manager Rosemary Banyard, who says that, while approval could be a year or two away, “the US market doesn’t currently have a chlorine-dioxide-based disinfectant product”. Tristel was the top holding in Ms Banyard’s VT Downing Unique Opportunities Fund (GB00BHNC2614) at the end of March 2020. While the fund is new, Ms Banyard’s CV includes almost 20 years co-managing the Schroder UK Smaller Companies and Schroder MidCap funds.