Key Investment Highlights
 

1. Advanced Medical Solutions Group PLC (LON: AMS) is a specialist manufacturer and developer of technologically advanced and innovative products for wound care, surgical, and wound closure markets.

2. AMS has a wide geographic reach and is selling its products in around 77 countries through regional and multinational distributors, partners and selling its products directly to Russia, the Czech Republic, Germany, and the UK. 

3. The Company looks forward to bringing innovation capabilities to market and offers a wider range of distinctive products for the clients.

4. AMS manufactures a variety of products and materials from sites located in the Netherlands, the Czech Republic, Germany, and the UK such as haemostats, sutures, tissue adhesives, foams, alginates, and silver alginates under ActivHeal®, RESORBA®, and LiquiBand® brands and is supplied under its own brand label.

5. The Group is focused on delivering superior quality products through its microbiological and analytical laboratories. The R&D is supported by Validation Engineers and Quality Engineers from inception to product development and commercialisation of products.

6. The Group has substantial upside potential in the internal sealants market and R&D pipeline after the acquisition of Sealantis and Biomatlante.

7. The recent approval of LiquiBand® Rapid™ and conclusion of XL clinical pilot study holds significant capability for organic growth.

8. Favourable demographic and global healthcare trends are likely to drive growth for advanced wound care and surgical markets in the long run.

9. AMS is actively seeking acquisitions globally to increase its product portfolio and bring new synergies to increase its market share.

10. The Group has reported decent operational performance with the well-positioned balance sheet for the current period.

11. AMS is confident towards its business model and management team to navigate through the uncertain times.

12. The share price is currently trading near its 52-week low, which makes an excellent opportunity to buy this growth stock.
 

Advanced Medical Solutions Group PLC (LON: AMS) – Supplementing Organic Growth with Accretive Growth to Generate Progressive Shareholder Returns. 

Advanced Medical Solutions Group PLC is a FTSE AIM-listed Company. It is engaged in designing, manufacturing, development and distribution of advanced wound care products, medical-grade materials and surgical dressings. In addition, it manufactures sutures and medical adhesives for sealing and closing tissue. The Group was founded in 1991 in Cheshire, the United Kingdom to serve major healthcare companies with advanced wound care products. In 2002, the Company acquired MedLogic Global Ltd, which bolstered the capability with cyanoacrylate based medical adhesives. In 2009, the Group acquired Corpura BV, in a joint venture with Recticel. Further in 2019, the Company completed the acquisition of Sealantis Limited and Biomatlante SA, for advancement in surgical sealant products and surgical biomaterial technologies. Presently, the Group employs around 650 people and operates from 8 locations to serve in over 75 countries worldwide.

The Group will hold its annual generated meeting on 10^th June 2020 and will report its half-yearly 2020 results on 30^th June 2020.

 
(Source: Company Website)

Key Fundamental Statistics



Segments at a Glance

The Group operates through two divisions - Surgical and Woundcare. The Group’s headquarter is in the United Kingdom and having six manufacturing facilities. There are six sales offices in Europe, one sales office in Russia each and United States. Geographically, the Company splits its sales into five core markets – the United Kingdom, Germany, Europe (excluding the United Kingdom and Germany), United States, and Rest of World.


(Source: Annual Report, Company Website)

 
(Source: Annual Report, Company Website)

Progress of Non-Financial KPIs
 

1. Customer service is measured in OTIF (On-Time in Full), which was impacted in the FY19 due to stock shortage during sterilisation delays and recertification of the RESORBA® portfolio. The Company expects OTIF to bounce over 90 per cent in 2020.

2. The engagement score surged to 48 per cent in FY19, and the Group targets to increase this further in 2020. It reflects the potential for higher retention and productivity.
 

 
(Source: Annual Report, Company Website)

Recent Developments – Reflecting Landmarks for Organic and Accretive Growth
 

1. 18^th May 2020: Peter Allen decided to step down, with effect from 6^th May 2020, from the Audit Committee.

2. 10^th March 2020:US Food and Drug Administration has approved LiquiBand® Rapid™ product of the Group. It will serve as a key driver for organic growth under LiquiBand product range.

3. 2^nd December 2019:The Company acquired the surgical biomaterial technology entity, Biomatlante SA, for the consideration of €8 million in cash.
 

Top Shareholders Statistics

 

Covid-19 Update and Actions taken to Mitigate the Impact
 

1. On 2nd April 2020, Advanced Medical Solutions Group released an update on the impact of coronavirus on business performance. The Group is focused on ensuring the health and safety of its employees, customers and supplying products, while maintaining social distancing.

2. As on 31st December 2019, AMS has a strong cash position of GBP 65 million with no debt and has an undrawn unsecured credit facility of GBP 80 million.

3. AMS is planning to pay a dividend for the full-year on 19th June 2020, which will be subject to approval by shareholders.

4. All the sites are currently operational to maintain the supply of medical devices to healthcare customers and partners globally. The group started to witness lower demand due to postponement and cancellation of surgeries and a reduced number of accidents due to global lockdowns.

5. The Group expects disruption in the supply chain, and demand to decline from both businesses in the coming months and at present is not able to predict the financial impact of a pandemic.

6. The Company continues to monitor the impact caused and expect its revenue to be impacted by 3 per cent to 5 per cent per month approximately.

7. AMS is taking necessary steps to manage its capital expenditure, working capital and operating costs to remain in a strong operational and financial position to return to growth quickly as the market recovers.

Financial Highlights – Decent Control Over Operating Expenses in FY2019 (31^st December 2019)


(Source: Annual Report, Company Website)
 

1. For the financial year ending 31^st December 2019, the group’s revenue stood at GBP 102.4 million as against GBP 102.6 million in the financial year 2018.

2. The reported operating profit stood at GBP 24,243 thousand in FY2019 versus GBP 28,474 thousand in FY2019, with an operating margin of 23.7 per cent. The adjusted operating margin stood at 26.4 per cent for the period.

3. The adjusted PBT (profit before tax) stood at GBP 26.6 million in FY2019 versus GBP 28.8 million in FY2018, reflecting a decline of 7 per cent. The reported PBT (profit before tax) declined by 14 per cent from GBP 28.3 million in FY2018 to 24.3 million in FY2019.

4. The reported diluted earnings per share declined by 16 per cent to 8.72 pence in FY2019 from 10.41 pence in FY2018. The proposed full-year dividend per share increased by 17 per cent to 1.55 pence in FY2019 versus 1.32 pence in FY2018.

5. The group’s operating cash flow (net) remained flat at GBP 21.7 million for the period. The net cash stood at GBP 64.8 million in FY2019.  
 

Financial Ratios: Higher Profitability Margins versus Industry Median
 
 

The reported Operating Margin, Pretax Margin and Net Margin stood at 23.7 per cent, 23.7 per cent and 18.5 per cent, respectively, for the financial year 2019. Reported profitability metrics were higher against the industry median.Return on equity for the Financial year 2019 stood at 10.4 per cent, which was lower than the industry median of 15.6 per cent. On the liquidity front, Advanced Medical Solutions Group Plc’s current ratio of 6.51x was significantly higher than the industry median of 1.56x, reflecting sufficient current assets to pay its short-term obligations. On leverage front, the debt-equity ratio of AMS stood at 0.05x, which was lower as compared to the industry median of 0.19x.

Share Price Performance Analysis


Daily Chart as on 21^st May 2020, before the market close (Source: Refinitiv, Thomson Reuters)

On May 21, 2020, at the time of writing (before the market close, at 9:45 AM GMT+1), Advanced Medical Solutions Group Plc shares were trading at GBX 238.50 and remained same against the previous day closing price. Stock's 52 weeks High and Low are GBX 357.21/GBX 210.00.

Bullish Technical Indicator

From the technical standpoint, its shares were trading well above its short-term support level of 10-day simple moving average prices, which reflects an uptrend in the stock and carrying the potential to move up further.

Valuation Methodology

Method 1: Price/Earnings Approach (NTM)

 

To compare Advanced Medical Solutions GroupPlc with its peers, Price/Earnings multiple has been used. The peers are Tristel Plc (NTM Price/Earnings was 39.85), EKF Diagnostics Holdings Plc (NTM Price/Earnings was 31.77), Dechra Pharmaceuticals Plc (NTM Price/Earnings was 26.23), Inspecs Group Plc (NTM Price/Earnings was 25.14) and ConvaTec Group Plc (NTM Price/Earnings was 21.43). The Average of Price/Earnings (NTM) of the company’s peers was 28.88x (approx.).

Method 2: Price to Cash Flow Approach (NTM)

 

To compare Advanced Medical Solutions Group Plc with its peers, Price/Cash Flow multiple has been used. The peers are Dechra Pharmaceuticals Plc (NTM Price/Cash Flow was 30.47), Horizon Discovery Group Plc (NTM Price/Cash Flow was 21.54), ConvaTec Group Plc (NTM Price/Cash Flow was 19.28), Clinigen Group Plc (NTM Price/Cash Flow was 15.99) and Coloplast A/S (NTM Price/Cash Flow was 38.00). The Average of Price/Cash Flow (NTM) of the company’s peers was 25.00x (approx.).

Valuation Metrics


(Source: London Stock Exchange)
 
This analysis is a useful technique to decompose the different drivers of ROE. It can be further examined through three financial metrics which are: net profit margin, asset turnover and financial leverage. This analysis helps to deduce whether the company’s profitability, use of debt or assets that are driving ROE.

Advanced Medical Solutions GroupPlc Vs FTSE AIM 100 Index (5 Years)


(Source: Refinitiv, Thomson Reuters)

In the last five years, Advanced Medical Solutions Group Plc share price has delivered 49.30 per cent returns as compared to 24.53 per cent returns of FTSE-AIM 100 index, which shows that the stock has outperformed the index during the last five years.

Industry Outlook

As per the recent publication (February 2020) of Valuates Reports, the market size of advanced wound care is projected to reach around USD 13.9 billion by 2026, reflecting a compounding annual growth rate of 6.5 per cent from 2019 to 2026. The growth of the advanced wound care industry is driven by the following factors:
 

1. Demand for evidence-based chronic wound therapiesin the prevalence of chronic diseases.

2. Increasing awarenessthat advanced wound therapy significantly reduces the healing time and hospital stay.

3. The surge in the geriatric population is directly linked with delay in wound healing process and demand for advanced wound care products.
 

Growth Prospects and Risk Assessment

The Company keeps on launching new platforms and upgrade the old products and services related to wound care, surgical, and wound closure markets to become one of the market leaders in the healthcare market. The Group has a strong network of regional and multinational distributors and partners, which is selling its products in around 77 countries. The Company, through its wide-ranging scope, has accelerated growth organically and through acquisitions. AMS is exposed to the effects of political and economic risks. Global political uncertainty regarding trade policy also poses a risk for the group, including protectionist measures and regulation or legislation in local markets.

Business Outlook Scenario

In the financial year 2019, the group witnessed a decline in financial performance. The Group do manage to control its operating costs for the period, which will result in improved operational and financial performance in the coming years. All the sites of the company are operating, despite the outbreak of covid-19 and started to experience a decline in the demand levels. The Group has a strong liquidity position to tackle the situation. Stringent measures have been taken to manage its capital expenditure, working capital and operating costs to remain in a strong operational and financial position to return to growth quickly as the market recovers. AMS has many value-accretive projects in the pipeline, with lower risk and higher capabilities. The Group is also monitoring the developments carefully and will provide appropriate updates.

The Group has substantially expanded the addressable surgical market with the acquisition of Biomatlante and Sealantis. Moreover, the incessant stringent regulatory environment has resulted in the withdrawal of several competitors from the market, which reflects the potential of the increasing market share of AMS. Further, the Company has diversified and broadened its advanced wound care portfolio in 2019 to reap benefits in the near term.


(Source: Annual Report, Company Website)

 Over the course of 3 years (FY16 - FY19), the company’s revenue surged from GBP 83.2 million in FY16 to GBP 102.4 million in FY19. Compounded annual growth rate (CAGR) stood at 7.17 per cent.
Based on the decent growth prospects and support from the valuation as done using the above two methods, we have given a “Speculative Buy” recommendation at the current price of GBX 236.50 (as on 21^st May 2020, before the market close at 12:02 PM GMT+1), with lower-double digit upside potential based on 28.88x Price/Earnings (approx.) on FY20E earnings per share (approx.) and 25.00x NTM Price/Cash Flow (approx.) on FY20E cash flow per share (approx.).
 
*All forecasted figures and Peer information have been taken fromRefinitiv, Thomson Reuters.

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