Woundcare specialist ConvaTec (CTEC) is the worst performing FTSE 100 stock (3 Aug) after announcing a drop in operating profit and the departure of well-respected chief financial officer Nigel Clerkin.
Its shares fall 6.8% to 287.9p.
In the first half of 2017, operating profit declined by 7.4% to $15.5m as higher operating expenses made a dent in the business.
ConvaTec says operating costs and expenses as a percentage of sales was 37%, up from 33.6% in the same period last year.
The healthcare firm says revenue growth is ‘weighted towards the second half of the year’ thanks to the impact of expected margin improvement and new product launches.
Full year guidance is unchanged with ConvaTec expecting an organic revenue growth rate greater than 2016 on a constant currency basis.
Bank of America Merrill Lynch’s Ines Duarte Silva maintains a ‘buy’ rating on the stock thanks to an ‘attractive combination of medium term prospects and inexpensive valuation.’
The stock currently trades at a forecast 19.3 times earnings per share in the year to 31 December 2018 - which we’d consider to actually be quite a high valuation.
The analyst is concerned by disappointing growth in the woundcare division, which raises risks in the second half of the year.
‘This lack of growth in wound means expectations are very demanding for the second half, while higher costs due to launches and lower than expected operating leverage could also impact the second half in our view,’ says Silva.
Clerkin has bowed out after refusing to relocate from Dublin to Reading after the company decided to move the role to its head office.
Frank Schulkes, previously executive vice-preside at GE Healthcare, will replace him on 31 October.
Read our article from last December to learn more about ConvaTec and how it makes money.
