The frames designer has a built a strong platform for growth in the fragmented global eyewear market
Wound care specialist Advanced Medical Solutions (AMS:AIM) is looking to expand its product range and boost margins through a market share grabbing acquisition spree.
The Cheshire-based company, known for its innovative glue that seals and helps heal cuts, is looking to buy companies with the more than £60 million at its disposal. One of the goals of its acquisition strategy is to expand its offering in the $7 billion surgical market.
Opening up direct routes to market in Europe is another driver, removing the need to pay a third party to sell its products. The company already has its own sales teams in the UK, Germany, Russia and the Czech Republic and is looking to expand the model to other countries in Europe.
The firm ended 2014 with £17 million in the bank and the debt-free company has access to undrawn borrowings of £50 million.
Any deal will complement the two-to-three new product launches the company aims to draw out of its pipeline each year. An anti-microbial dressing and a foam-absorbing dressing are expected to hit the market in the second half of the year.
The company is unusual for a medical supplies business in that it has a track record of sustainable profit growth. This year FinnCap expects it to report a £16.4 million pre-tax profit, a 3.7% rise in 12 months, which the broker forecasts to grow 12.1% to £18.4 million in 2016.
The major issue for investors looking at Advanced is that it’s expensive. FinnCap’s prospective 6.9p adjusted earnings per share (EPS) puts the stock on 23 times earnings. However, the earning potential of the company is expected to rise if new businesses arrive into the group’s portfolio. Another growth driver for the company could be in the US, where sales improved by 46% in 2014.
The main risks are that it may fail to bring new or updated products to market fast enough, or its acquisitions may not provide the routes to market or push further into the surgical market as planned.
Advanced Medical makes and sells a range of products in 65 countries, which include alginates, foams and tissue adhesives under the ActivHeal, LiquiBand and RESORBA brands.
Not cheap at 160.5p but positive newsflow is expected that could boost its earning power.
SWOT ANALYSIS
STRENGTHS
• War chest
• Revenue-generating model
• Surgical market expansion
WEAKNESSES
• High PE
• No dividend
OPPORTUNITIES
• Product launches
• Direct sales force
• US demand
THREATS
• Competition
• Regulation
• Rising valuations
