Advanced Medical Solutions Group PLC (LON: AMS)

Advanced Medical Solutions Group PLC is a FTSE AIM UK 50 Index 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, it employs around 700 people to serve in about 77 countries worldwide.

 (Source: Company Website)

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. Furthermore, it has a strong network of regional and multinational distributors and partners, which is selling the products in around 77 countries. The Company, through the wide-ranging scope, has accelerated growth organically and through acquisitions. It is focused on delivering superior quality products through microbiological and analytical laboratories.

Despite the unprecedented first half of FY20, the Company remained cash generative and profitable. Moreover, it has maintained R&D expenditure to progress its key projects, which makes it well-positioned for growth as the market continue to recover.

AMS is actively seeking acquisitions globally to increase the product portfolio and bring new synergies to increase the market share. From the industry perspective, the favourable demographic and global healthcare trends are likely to drive growth for advanced wound care and surgical markets in the long run.

(Source: Refinitiv, chart created by Kalkine Group)

However, the growth trajectory of the business could be impacted due to existing as well as emerging risks and uncertainties. Also, the increased competition can lead to the market share decline and income short fall. Moreover, the Brexit implications are causing higher costs, customer delays, longer lead times for customers, and longer product approvals. Adjacently, there are some operational risks arising from changing regulatory policies, loss of sensitive data through cyberattacks, and increased supply cost due to Covid-19 outbreak. Also, foreign exchange fluctuations can lead to a shortfall in profits and loss of income.

Industry Outlook Dynamics

As per the recent report (August 2020) from the Allied Market Research, the global advanced wound care market is projected to reach US$15.30 billion by 2027 from US$9.23 billion in 2019, representing a CAGR of ~11.6%.

The growth of the advanced wound care industry is driven by the following factors:

• Rising incidence of diabetes.
• Rising incidences for wound ulcer.
• Demand for evidence-based chronic wound therapies in the prevalence of chronic diseases.
• Increasing awareness that advanced wound therapy significantly reduces the healing time and hospital stay.
• The surge in the geriatric population is directly linked with a delay in the wound healing process and demand for advanced wound care products.

Further growth opportunities can be expected with the withdrawal of competitor products in surgical and wound care markets as a result of the introduction of the Medical Device Regulation.

Key Fundamental Statistics

Key Shareholders Statistics

Recent Developments

On 4 August 2020, Advanced Medical Solutions Group announced the grant of patents from the US and the UK for LiquiBand® Exceed range for providing protection until 2034.

Key Performance Indicators

(Source: Annual Report, Company Website)

Financial & Business Highlights – H1 FY2020 (30 June 2020)

(Source: Interim Report, Company Website) 

• In the first half of the financial year 2020, the Company maintained supply to hospitals and healthcare providers and retained its employee base in safe conditions.
• The Company remained cash generative and profitable and continue to make an investment in R&D while maintaining dividend payments.
• The revenue for the period declined by 19% as the business was impacted by the slowdown in demand and government-led restrictions.
• The trading stood in line with expectations and progress continued on all core projects with increased investment in R&D.
• Despite the lower revenues and challenges faced, the Company reported an underlying operating profit of £5.5 million and increased net cash to £67.9 million.
• AMS maintained the interim dividend of 0.5 pence in H1 FY2020 and expects to return to dividend growth once the business returns to normal in the near future.
• During the pandemic, all manufacturing sites were operational and servicing order demand and customers.
• The recovery plan for US LiquiBand® remained on track, with recovering sales initiatives of 2% of end market volumes.
• The Company, along with key partners, launched LiquiBand® Rapid and regained product listings on two GPO (Group Purchasing Organisation) contracts.
• The Company continues to gain approvals for new geographies and got first approval for LiquiBandFix8® and LiquiBand® in India.
• AMS is well-positioned to return to strong growth, based on balance sheet strength and expects the impact of covid-19 will reduce in each subsequent quarter.

Financial Ratios – Strong Profitability & Liquidity Position versus the Industry Median

Reported profitability metrics for the first half of the financial year 2020 stood higher than the industry median, reflecting higher revenue and better control over expenses as compared to the industry. On the liquidity front, Advanced Medical Solutions Group Plc’s current ratio was significantly higher than the industry median of 2.16x, reflecting sufficient current assets to pay the short-term obligations. On leverage front, the debt-equity ratio was 0.05x, which was lower as compared to the industry median of 0.27x, reflecting that the company is less leveraged as compared to the industry.  

Share Price Performance Analysis

(Source: Refinitiv, chart created by Kalkine Group)

On 8 October 2020 (before the market close, at 10:24 AM GMT+1), Advanced Medical Solutions Group Plc shares were trading at GBX 209.50, down by 0.23% against the previous day closing price. Stock 52-week High was GBX 312.50 and Low of GBX 190.00, respectively.

From the technical standpoint, 14-day RSI is currently supporting an upside move (around 46 level), which means the stock price could increase in the short term.

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

(Source: Refinitiv, chart created by Kalkine Group)

Business Outlook Scenario

During H1 FY20, the Company has faced an unprecedented period of uncertainties; however, it responded well to stay resilient, while making significant investments for future developments. The Covid-19 pandemic is likely to impact the sales and profitability in the short run. Nevertheless, the Board remained confident about medium to long-term prospects.

Moreover, AMS has started experiencing signs of demand recovery in some markets, though the pace of recovery will vary for different types of surgical procedures and different geographies. Given the potential for second waves of Covid-19 infection, the Company could not provide full-year guidance for FY20. However, it is encouraged by the improved trading since Q2 FY20.

Overall, AMS is coping well with the changing demand patterns and pleased to witness recent market share gains for LiquiBand® in the US, following the launch of LiquiBand® Rapid™ in the Q1 FY20. The Company looks forward to bringing innovation capabilities to offer a wider range of distinctive products for the clients. AMS is actively seeking acquisitions globally to increase the product portfolio and bring new synergies to increase the market share. It has many value-accretive projects in the pipeline, with lower risk and higher capabilities. The Company is confident towards the business model and management team to tackle the uncertain times.

Considering the signs of recovery, decent operating performance, high level of cash generation capabilities, and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on Advanced Medical Solutions Group Plc at the current price of GBX 209.50 (as on 8 October 2020, before the market close at 10:24 AM GMT+1), with lower double-digit upside potential based on 48.50x Price/NTM Earnings (approx.) on FY20E earnings per share (approx.). 

 

*Dividend Yield may vary as per the stock price movement.

*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

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