Global medical products and wound care company ConvaTec (CTEC) reported better-than-expected third-quarter revenues as improvements were made across the company's product lines.
Sales of $462.9m for the three months to 30 September came in 4.6% higher than last year and, importantly, outstripped consensus expectations of $455m.
Investors are clearly anticipating stronger growth beyond 2019, when overall revenues are expected to drift from $1,832m last year to $1,818m.
Shares in the FTSE 250 company shot up almost 9% to 199p, valuing the business at 3.95bn. ConvaTec joined the London stock market three years ago at 225p per share, for £4.39bn market value.
START OF A JOURNEY
‘I am pleased we have reported a solid performance in the third quarter,’ said chief executive officer Karim Bitar, who joined the company on 30 September. That date also saw a new chairman start work, with former Rentokil Initial (RTO) chairman Dr John McAdam joining.
Bitar was also clear about the challenge ahead, adding that ‘this is a small step on the significant journey ahead of us as we focus on pivoting to sustainable and profitable growth.’
New chief Karim Bitar has a healthcare background having previously worked at US firms Eli Lilly & Co and Johnson and Johnson.
GOOD BUSINESS MOMENTUM
The company is guiding for full year organic revenue growth of between 1% and 2.5% and an adjusted earnings before interest (EBIT) margin of 18% to 20%, which includes the costs associated to the transformation initiative.
All divisions contributed positively to the quarter; Woundcare revenues were up 3.6%; Ostomy sales were 3% higher compared with a relatively strong quarter last year; Continence and Critical Care saw sales up 8% led by US Home Distribution Group against a weak comparison last year; Infusion Devices saw growth of 4.3% which also benefited from a weak comparison.
ANALYSTS REACT
Broker Numis commented that ‘even stripping-out tailwinds, growth of around 3% to 3.5% is still encouraging.’ The company announced a successful re-financing of its debts on more favourable terms. It now has in place a five-year $1.5bn term facility and $200m revolving credit facility.
The company ended 2018 with net debts of $1.3bn, comfortably inside the new facility while the revolving facility remains undrawn. This leaves the net gearing ratio, or net debt compared with equity at 81%.
As previously announced the company is in a litigation case against one of its out-sourcing partners, bonding solutions company Scapa (SCPA) which has been dismissed by the District Court of New Jersey, while Civil Proceedings are progressing and due to go to trial in late 2021, unless it is settled before.
