- Shares gain as company returns to growth
- US FDA clearance decision expected mid-2023
- Parker Labs royalties renegotiated upwards
Shares in infection prevention specialist Tristel (TSTL:AIM) jumped 6% to 330p on Monday as investors welcomed a return to pre-pandemic growth with underlying first-half revenues up 21% and adjusted pre-tax profit up 41% to £3.1 million.
Prior to the pandemic and Brexit-related distortions, Tristel had grown revenues at a compound annual rate of 17% per year for the previous 13 years as its proprietary chlorine dioxide chemistry used for decontamination of medical devices gained market share.
WHAT DID THE COMPANY SAY?
For the six months to 31 December, reported revenues increased 16% to £15.5 million and excluding prior-year distortions they were 21% ahead of the same period in 2021. The UK was the star performer with sales increasing by 24% to £6.3 million.
Distortions were created by the discontinuation of low-growth product lines amounting to £1.5 million and the release of £0.9 million of inventory previously held back by the NHS.
First half revenue growth was ahead of the firm’s long-term guidance of between 10% and 15% while an EBITDA (earnings before interest, tax, depreciation, and amortisation) margin of 26% was also ahead of the 25% guidance.
The company ended the period with no debt and cash of £8.4 million (£8.8 million in 2021) after paying dividends of £3.3 million and a special dividend of £1.4 million in August 2021.
Chief executive Paul Swinney told Shares the business appears to have ‘regained its mojo’ as business got back to normal with the pandemic now firmly in the rear-view mirror.
WHY 2023 IS PIVITOL FOR TRISTEL
Having already launched Duo Ultrasound in the US (approved by the Environmental Protection Agency), and Duo Ophthalmology in Canada, Tristel is on track to deliver the necessary additional data to the FDA (Food and Drug Administration) by the end of March for the regulator to make a decision on whether to approve both products by the end of June.
Assuming FDA clearance, the magnitude of the commercial opportunity has increased following the agreement of improved terms with Tristel’s US distributor Parker Labs.
Finncap analyst Mark Brewer estimates the effective royalty on product sales increases to 25% from the high teens while the firm will also receive a 20% royalty on Parker’s EPA-registered product revenue.
Brewer commented: ‘This is clearly a positive, adding circa 45% to the net present value of future US cashflows.
‘We reiterate our 480p target price cognisant that this excludes the full value of the US opportunity as we await FDA approval.’
