Investment Summary

ConvaTec Group PLC is a global medical products and technologies company focused on chronic conditions where consistent, high-quality care delivers meaningful improvements in patient outcomes. The company has been undergoing a multi-year operational and strategic transformation called 'Pivot to Growth', which has progressively delivered faster organic Revenue growth, expanding margins and a healthier free Cash Flow profile. With a portfolio anchored in advanced wound care, ostomy care, continence care and infusion care, ConvaTec is exposed to durable demographic and clinical trends that support multi-year Demand growth. Combined with management's continuing focus on innovation, operational excellence and disciplined Capital allocation, we believe the shares offer an attractive risk-reward profile. ConvaTec Group PLC is therefore rated a Buy.

Business Overview

ConvaTec is headquartered in Reading, United Kingdom, and is listed on the London Stock Exchange as a constituent of the FTSE 100. The company operates through four principal categories. Advanced Wound Care addresses chronic and complex wounds, including diabetic foot ulcers, venous leg ulcers, pressure injuries and surgical wounds, with product brands such as AQUACEL, AQUACEL Ag and ConvaFoam. Ostomy Care provides products that support the care of stomas following surgery, with major brands including Esteem and Natura. Continence Care offers intermittent self-catheters and bowel management systems, with the GentleCath portfolio at its heart. Infusion Care manufactures infusion sets used with insulin pumps and other delivery devices in Partnership with global diabetes device manufacturers, addressing rising worldwide diabetes prevalence and the growing penetration of pump therapy.

Geographically, ConvaTec generates revenues across North America, Europe, the Middle East and Africa, Asia Pacific and Latin America. The product portfolio is anchored by recurring consumable usage, which provides a stable, repeating revenue stream tied to chronic patient needs. The company employs more than 10,000 people globally, with Manufacturing operations across North America, Europe and the Caribbean.

Sector Backdrop

The chronic care segment within medical technology is supported by powerful long-term demand drivers. Ageing populations across the developed world are increasingly susceptible to wounds, mobility-related continence challenges and chronic surgical conditions. The global epidemic of diabetes, with prevalence projected to exceed 700 million adults globally by 2045, drives demand for diabetic foot ulcer treatments, infusion therapy and continence solutions. Improved survivorship from cancer and inflammatory bowel disease has expanded the ostomy patient population. Rising public and clinical awareness of chronic care is encouraging earlier intervention, better adherence and a broader range of advanced therapy adoption. Reimbursement frameworks in major markets remain favourable for advanced wound care, ostomy and continence solutions, with cost-effectiveness data supporting payer coverage. Within infusion care, the secular shift towards continuous subcutaneous insulin infusion and the integration of automated insulin delivery systems are expanding the addressable patient base. These trends collectively underpin a multi-year growth runway for category leaders.

Investment Thesis

There are several reasons why we believe ConvaTec is well positioned to deliver attractive Shareholder returns. First, the 'Pivot to Growth' strategy is delivering tangible operational results: organic revenue growth has accelerated from low single digits historically into the mid to high single digits range. Second, gross and operating margins are expanding as cost programmes deliver, manufacturing efficiency improves and the product mix shifts towards higher-value innovations. Third, the innovation pipeline is reaccelerating, with new launches in wound care, ostomy and continence augmenting the existing portfolio. Fourth, geographic expansion in emerging markets and selected high-growth developed markets provides additional revenue uplift. Fifth, the company has been improving free cash flow conversion, providing the capacity to invest in growth, reduce Leverage and resume Dividend growth. Finally, the valuation embeds limited Credit for the continued execution of the transformation, providing a favourable starting point for long-term investors.

Growth Drivers

Advanced wound care is benefiting from the rising prevalence of chronic wounds, particularly diabetic foot ulcers and venous leg ulcers, both of which are increasingly common in ageing populations with metabolic and cardiovascular comorbidities. New product launches, including next-generation foam dressings, antimicrobial silver alginate technologies and advanced collagen products, expand the offering. The ConvaFoam family of dressings has been a key launch, addressing a broad range of moderately exuding wounds with an integrated foam design. Ostomy care is supported by demographic trends, surgical activity recovery post-Pandemic and a steady stream of product upgrades that deliver better skin protection, leakage prevention and discretion for patients.

Continence care is being driven by the GentleCath Glide and GentleCath For Me intermittent catheter platforms, which combine clinical performance with patient-friendly designs. Direct-to-patient services such as me+ provide patient education, sample programmes and supplier partnerships that strengthen Brand loyalty and adherence. Infusion care continues to benefit from rising insulin pump adoption, partnerships with leading device manufacturers and increasing penetration of automated insulin delivery. Across all categories, faster commercial execution, accelerated emerging markets expansion and selective M&Amp;A provide further uplift to the underlying growth profile.

Infusion Care deserves a closer look as a structural growth contributor. The global insulin pump installed base continues to grow rapidly as automated insulin delivery systems integrating continuous glucose monitors with insulin pumps deliver superior clinical outcomes for people with type 1 diabetes and an expanding subset of type 2 diabetes patients. The growing emphasis on closed-loop systems requires reliable, high-quality infusion sets that fit modern pump designs. ConvaTec's role as a key OEM supplier of infusion sets positions the company favourably for the multi-year expansion of pump therapy. As more major pump manufacturers launch next-generation devices and as reimbursement for AID systems broadens across major markets, ConvaTec's infusion set volumes are expected to grow alongside this secular trend.

Financial Performance

ConvaTec has delivered a step-change in financial performance under the current management team. Organic revenue growth has accelerated meaningfully, reported revenues have benefited from supportive currency and bolt-on contributions, and adjusted operating margins have moved higher year on year. Gross Margin expansion is being supported by manufacturing efficiency, value-added new product launches and disciplined pricing. Selling, general and administrative cost growth has been moderated through digitalisation, organisational simplification and shared services. Adjusted Earnings-per-share/">Earnings Per Share have been growing at attractive rates, free cash flow generation has improved and the Leverage Ratio has reduced. The Balance Sheet is in a healthy position and supports continued investment in innovation, selective acquisitions and progressive dividend growth.

Management has reiterated medium-term targets for mid to high single-digit constant-currency revenue growth and adjusted operating margins in the low to mid 20s percent range. As the transformation continues, we anticipate further margin expansion alongside disciplined capital allocation that should drive attractive earnings growth over multiple years. Free cash flow conversion is improving, supporting both organic reinvestment and the company's progressive dividend policy.

Innovation and Pipeline Outlook

Innovation is a key pillar of the 'Pivot to Growth' strategy. Recent and upcoming launches include enhanced foam dressings with longer wear time and superior fluid handling, next-generation antimicrobial dressings for hard-to-heal wounds, new ostomy pouches and skin barriers designed for sensitive skin, intermittent catheter variants for both adult and paediatric use, and innovative infusion sets developed in partnership with diabetes device manufacturers. The company is also investing in digital health capabilities, including patient apps, remote monitoring and integrated Supply solutions designed to improve adherence, reduce complications and support clinicians. Clinical evidence generation, real-world data programmes and health economic studies underpin payer support for premium-priced innovations. R&D spend has been steadily increasing as a proportion of revenue, reflecting management's commitment to a stronger innovation cadence over time.

Commercialisation Outlook

ConvaTec's commercialisation strategy is increasingly tailored to the needs of chronic patients and the health systems that serve them. Direct-to-patient services in continence and ostomy support patient adherence, retention and referrals. Field forces are being prioritised for higher-value categories and key accounts. In emerging markets, the company is expanding distribution coverage, partnering with local Stakeholders and adapting product portfolios to local pricing and reimbursement realities. Digital channels, including E-commerce, patient communities and clinician engagement platforms, augment traditional sales and Marketing. Within infusion care, partnerships with diabetes device manufacturers provide a sustainable B2B revenue stream tied to the growth of the underlying pump installed base. The commercialisation footprint is increasingly aligned with the secular growth drivers, supporting confidence in revenue durability.

Capital Returns and Balance Sheet

ConvaTec has progressively rebuilt its capital allocation framework around three priorities: reinvestment in the business to support growth, a sustainable progressive dividend that grows with earnings, and balance sheet discipline. Leverage has been reduced from elevated post-IPO levels to more comfortable territory, providing flexibility for selective bolt-on transactions and incremental capital returns over time. The dividend, while modest in Yield terms, provides a steady total return contribution alongside the underlying earnings growth. We expect continued dividend progression in line with the expanding earnings base. The financial framework is consistent with an investment grade credit profile and supports continued reinvestment in innovation and commercialisation.

Valuation Perspective

ConvaTec trades at a valuation that is broadly consistent with chronic care specialist peers on forward earnings and EV/EBITDA, but we believe the multiple does not fully capture the inflection in organic growth, margin expansion potential and ongoing free cash flow improvement. As the company demonstrates further successful execution of its transformation, the relative valuation gap to other med-tech peers should narrow. Discounted cash flow analysis, applying conservative Long-term Growth and terminal margin assumptions, supports meaningful upside from current levels. Combined with the modest but growing dividend, total return potential is attractive.

Key Risks

Risks include execution of the 'Pivot to Growth' programme, particularly maintaining the elevated pace of organic growth and margin expansion. Reimbursement frameworks in advanced wound care, ostomy and continence remain subject to periodic review, which can affect pricing dynamics. Currency Volatility, particularly across European and emerging market currencies, can affect reported financials. Competition is intensifying in advanced wound care, with multiple global and regional players seeking share in premium dressings. Manufacturing reliability, particularly for medical device products subject to stringent quality requirements, is critical and any disruption could affect revenues. Macro factors such as healthcare budgeting, patient out-of-pocket affordability and hospital admission patterns also need monitoring.

Sustainability and ESG

ConvaTec emphasises sustainability across its operations and supply chain, with commitments to reduce greenhouse gas emissions, water consumption, packaging waste and product carbon footprint. The company supports patient communities through education, advocacy and direct support services, particularly in ostomy and continence care where psychosocial impact is significant. Strong governance, board independence, ethical compliance and supply chain integrity programmes support stakeholder trust. For investors integrating ESG considerations, ConvaTec's mission of improving outcomes for chronic patients combined with measurable environmental and social commitments provides credible positioning.

Management and Strategy Execution

Under CEO Karim Bitar's Leadership, ConvaTec has shifted from a strategy centred on cost discipline and portfolio rationalisation to one anchored in growth, innovation and operational excellence. The 'Pivot to Growth' programme spans five strategic levers: improving organic growth across the four categories, accelerating innovation, building commercial capability in priority markets, driving operational excellence, and pursuing selective bolt-on acquisitions that strengthen the portfolio. Multi-year priorities include strengthening Infusion Care growth alignment with rising automated insulin delivery adoption, leveraging the AQUACEL technology platform in advanced wound care, building the GentleCath direct-to-patient business, and capturing share within ostomy. Importantly, the leadership team has been complemented with experienced commercial, innovation and supply chain executives, bringing fresh perspectives and ensuring that the transformation is sustainable through future cycles.

Conclusion: Why We Rate ConvaTec a Buy

ConvaTec Group PLC offers exposure to durable chronic care demand through a diversified portfolio of advanced wound care, ostomy, continence and infusion solutions. With the 'Pivot to Growth' programme continuing to deliver accelerating organic growth, expanding margins, stronger free cash flow and progressive dividends, the medium-term outlook is increasingly compelling. The valuation provides a reasonable starting point and any continued execution should support a re-rating. ConvaTec Group PLC is therefore rated a Buy. The combination of defensive end-market demand, an accelerating innovation cadence, strong commercial momentum and disciplined capital allocation positions the company favourably for long-term value creation, and we view the shares as a high-conviction holding within the broader medical technology universe.