Interactive Investor

Tristel up 10% as upgrades keep coming

12th October 2015 15:26

Lee Wild from interactive investor

Last year, we wrote that Tristel was in the midst of a profits upgrade cycle. Hospitals, laboratories and vet surgeries were snapping up its disinfectants, and earnings were growing fast. Despite having risen 60% in three months, we thought the shares still looked "good value". Well, they’ve surged by another 62% since, including 10% after these forecast-busting full-year results. And guess what? There's another profits upgrade.

A 14% increase in sales for the year ended 30 June to £15.3 million, and 44% jump in adjusted pre-tax profit to £2.6 million, "comfortably" beat finnCap's forecasts. The broker has now upgraded top line estimates for 2016 by 6% to £17 million and by over 12% for profit to £2.9 million. That will mean another year of double-digit growth at Tristel, although adjusted earnings per share (EPS) are tipped to be flat at 5.3p after rocketing 72% this year - R&D tax credits and relief from share options distorted the numbers here.

It's worth remembering, though, that finnCap's estimates do not include any potential contribution from the US and Canada. But Tristel will submit a dossier of information to US authorities in June 2016, and fully expects to win regulatory approval in the states in the second half of 2017. FinnCap anticipates commercial launch shortly after.

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Tristel is pursuing regulatory approvals for products in over ten countries, but clearly the US is the big one. It is also the hardest regulatory body to register with, and testing protocol is harder. If all goes well, Tristel's high-tech foam will be the first products to make it there. They’re currently being tested for use as a disinfectant for ophthalmic devices and for ultrasound probes.

"It looks promising," chief executive Paul Swinney tells Interactive Investor. Currently, and perhaps disturbingly, existing small ophthalmic products are often disinfected by products like Milton left in a Tupperware box. That costs hospitals just a few pence per application compared with around 35p for Tristel's foam. At least more medical bodies are seeing sense in Tristel's superior offering. Updated guidance from the Royal College of Ophthalmologists – currently 10 years old – could be issued next year, which would also be a boost for Tristel.

Income seekers received a boost, too. Dripping in cash, Tristel paid a special dividend of 3p a share in August, taking the total payout for the year to 5.72p from 1.62p a year ago. But Tristel generates so much cash there could be more, unless it needs the money to accelerate the approvals process. It had net cash of £4 million at the end of June and £1.2 million after the special. Now it has £3.4 million.

According to finnCap, Tristel trades on an enterprise value/sales ratio of 2.4 times, enterprise value/cash profits ratio of 10.7 times and price/earnings (PE) ratio of 20.9 times, roughly in line with peers. "These multiples are not out of line with other profitable providers of infection prevention and control products and services," says the broker.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.