Advanced Medical Solutions Group PLC (LON: AMS) – Robust operational cash flow and impressive R&D pipeline.

Advanced Medical Solutions Group PLC is an FTSE AIM UK 50 Index listed Company, which is engaged in designing, manufacturing, development of surgical equipment and advanced wound care products. The Company was founded in 1991 in Winsford, UK. Moreover, the Company is operating out of 10 locations and currently employs 700 people. AMS sold its products and equipment across 75 countries and having more than 100 distribution partners. The Company has nine manufacturing facilities and operates across two broad business divisions – Surgical and Woundcare. AMS manufactures the products in the UK, Israel, France, Germany, the Netherland, and the Czech Republic. Furthermore, AMS has R&D (“Research & Development) innovation hubs in the UK, Germany, France and Israel.

The Company will conduct Annual General Meeting in June 2021.

(Source: Company presentation)

Recent Trend of Dividend Payments

The Company will pay a final dividend of 1.20 pence per share with respect to FY20 on 18 June 2021. Moreover, the ex-dividend date will be 27 May 2021. The Company had already paid an interim dividend of 0.50 pence per share on 23 October 2020. Thus, the total FY20 dividend will be 1.70 pence per share, while it was 1.55 pence per share during FY19.

Growth Prospects and Risk Assessment

The Board is committed to the strategy of building organic and acquisitive growth and is quite optimistic regarding the short and long-term prospects for AMS. The Company had completed the acquisition of Raleigh Adhesive Coatings Limited ("Raleigh") during November 2020 for £22 million. It would facilitate AMS to achieve several synergies and grab new commercial opportunities. Moreover, the US clinical trial regarding the Premarket Approval (PMA) for LiquiBandFix8^®  has made significant progress as around 65% of the total required patient procedures are now completed, with filing expected in 2022. Based on a strong cash position, the Company had repaid £0.4 million of the UK government furlough support. Furthermore, the patient enrolment for the first human clinical study of Seal-G^® and Seal-G^® MIST had started in February 2021.

(Source: Company presentation)

The Company had sufficient financial resources to maintain the R&D expenditure required to accelerate the progress of key projects.

However, certain potential risks can impact the business, such as risks of declining market share, insufficient focus on intellectual property protection, interest rate risk, ineffective use of IT systems, rising global competition, increased cost of supply, making poor integrations. The Company is also exposed to Covid-related risk, which may cause a delay in clinical trials. 

After understanding growth prospects and risk assessments, we will analyse some key fundamental and shareholders statistics of Advanced Medical Solutions Group PLC.

A Glimpse of Business Segments (FY19 Revenue Split)

Recent Developments

On 12 January 2021: The Company has appointed Grahame Cook, as a Non-Executive Director, with effect from 1 February 2021. 

Financial and Operational Highlights (for the twelve months ended 31 December 2020 (FY20), as on 17 March 2021)

(Source: Company result)

• AMS had shown a decline of 15% in revenue from £102.4 million during FY19 to £86.8 million during FY20 as all regions and products were adversely impacted by the Covid-19 pandemic.
• Similarly, the adjusted profit before tax had reduced by almost 50% to £13.4 million during FY20, and the adjusted diluted earnings per share had dropped to 5.44 pence during FY20, due to the adverse operating leverage.
• Moreover, the Company had shown improvements during the third and fourth quarter of FY20.
• The revenue of the surgical business unit had shown a decline of 11% during FY20 due to decreasing sales volume amid the Covid-19 pandemic. Furthermore, the Bio surgical devices category had shown significant revenue growth of around 31% during FY20, illustrating increased sales of Biomatlante (acquired in November 2019).
• The revenue across the woundcare business had shown an almost 20% drop during FY20 due to the adverse impact of the Covid-19 pandemic on the sales volume.
• The Company had accelerated the progress on all key projects reflected by an increase in gross R&D investment to £7.9 million during FY20, while it was £6.5 million during FY19.
• The Company had net cash of £53.8 million as of 31 December 2020, after completing the acquisition of Raleigh for £22.0 million at the end of the period.
• On the liquidity front, the Company has an undrawn unsecured £80 million credit facility provided jointly by The Royal Bank of Scotland and HSBC.
• The Company had managed to generate a strong net cash inflow from operating activities of £21.5 million during FY20 despite an unprecedented situation as the reduction in operating profit was offset by the strong working capital management.

Share Price Performance Analysis

 (Source: Refinitiv, Thomson Reuters)

On 01 April 2021, at 09:12 AM GMT, Advanced Medical Solutions Group PLC’s shares were trading at GBX 230.00, down by around 1.50% against the previous day closing price. Stock 52-week High and Low were GBX 269.50 and GBX 190.00, respectively.

From a technical standpoint, 200-day SMA (GBX 226.60) supports an upside potential. 

In the last five years, Advanced Medical Solutions Group PLC’s stock price has delivered a return of ~29.45% return as compared to ~25.00% return of the FTSE AIM UK 50 index and ~20.18% return of FTSE All-Share Health Care Equipment & Services index, which shows that the stock has outperformed the benchmark index and the benchmark sector. 

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

Business Outlook Scenario

The Company had kickstarted 2021 on a good note with a healthy order book in both business segments – Surgical and Woundcare. It has carried the positive momentum built during the third and quarter of FY20 in 2021 even after several ongoing operational headwinds caused by the Covid-19 pandemic. Meanwhile, the Company had accelerated the progress of product development and pace up the process of taking regulatory approvals in new geographies. Furthermore, the approval of LiquiBand^® Rapid™ and the successful clinical trials for LiquiBand^® XL would significantly increase the AMS’s addressable market in the near term. The LiquiBand^® XL would be expected to launch by the end of 2021. AMS would continue to invest in R&D development to capitalize on significant market opportunities for long-term growth. Moreover, it has several ongoing developments such as in Sealantis, the LiquiBandFix8^® PMA and Medical Device Regulation. Thus, the Company is well-positioned to deliver strong organic growth during 2021 and beyond. 

Considering the expected launch of LiquiBand^® XL, healthy order book in both Business Units, synergies benefits of AMS and Raleigh,  solid momentum on strategic priorities, accelerated investment in R&D initiatives, sound business model, decent operating and financial performance, robust cash generation capabilities, improved net margins, adequate liquidity,  and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on Advanced Medical Solutions Group at the current price of GBX 230.00 (as on 01 April 2021 at 9:12 AM GMT), with lower-double digit upside potential based on 29.38x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.).

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

*The dividend yield is subject to change as per the stock price movement.

Disclaimer

References to ‘Kalkine’, ‘we’, ‘our’ and ‘us’ refer to Kalkine Limited.

This website is a service of Kalkine Limited. Kalkine Limited is a private limited company, incorporated in England and Wales with registration number 07903332. Kalkine Limited is authorised and regulated by the Financial Conduct Authority under reference number 579414.

The article has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. No advice or information, whether oral or written, obtained by you from Kalkine or through or from the service shall create any warranty not expressly stated. Kalkine does not intend to exclude any liability which it is not permitted to exclude under applicable law or regulation.

Kalkine does not offer financial advice based upon your personal financial situation or goals, and we shall NOT be held liable for any investment or trading losses you may incur by using the opinions expressed in our publications, market updates, news alerts and corporate profiles. Kalkine does not intend to exclude any liability which it is not permitted to exclude under applicable law or regulation. Kalkine’s non-personalised advice does not in any way endorse or recommend individuals, investment products or services for your personal financial situation. You should discuss your portfolios and the risk tolerance level appropriate for your personal financial situation, with a professional authorised financial planner and adviser. You should be aware that the value of any investment and the income from it can go down as well as up and you may not get back the amount invested.