Advanced Medical Solutions Group PLC (LON: AMS): Robust Growth of Around 16% in H1 FY21 Interim Dividend

Advanced Medical Solutions Group PLC is an FTSE AIM UK 50 Index listed Company engaged in designing, manufacturing, and developing 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 more than 700 people. AMS sells its products and equipment across 84 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 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.

Recent trend of dividend payments

(Data Source: LSE Website, Research done by Kalkine Group)

The chart above demonstrates the consistent dividend payment done by the Company from FY15 to FY20. In H1FY21, AMS will pay an interim dividend of GBX 0.58 per share, a 16.00% increase on a YoY basis. It is scheduled to be paid on 22 October 2021 and has an ex-dividend date of 23 September 2021.

Regulatory and Clinical Progress

• AMS launched LiquiBand Rapid in the USA, which is likely to support brand growth in the region.
• As per the Company, the US trial to support LiquiBandFix8 PMA submission is on track for FY22 following 12- month patient follow-up.

The product will be the first of its type to enter the USD 250 million US hernia fixation market.

• The Company launched RESORBA branded bone substitutes range into Germany and the Czech Republic in H1FY21.

Growth Prospects

• Solid R&D: The company focus on high-value products which they either develop or acquire to drive market share. It has increased the investment in R&D in the innovation hubs across France, UK, Germany, and Israel. The Company increased its R&D investment to sales from 6.3% in FY19 to 9.1% in FY20. The new products developed through the investments resulted in 19.8% of the total revenue of the Company.
• Expanding Market Share Through Acquisition: The board is committed to building organic and acquisitive growth, and it is pretty optimistic regarding the prospectus for AMS. The acquisition of Raleigh Adhesive Coatings Limited has helped AMS to achieve synergy benefits and commercial opportunities.
• Strong Pipeline to Drive Growth: The favourable market conditions and positive regulatory developments provide an opportunity for the existing product portfolio to gain market share and enter new geographies. Furthermore, the critical new products such as LiquiBand XL, Sealantis and LiquiBand Fix8 PMA will help the company to capture market share, enter new markets, and drive growth in the future.

Key Risks

• Forex Exposure: The Company operates in multiple geographies, which increases its risk to volatile currency movements. Any sudden unexpected volatile movement could impact the bottom line of the Company.
• Low Success Rate of Clinical Trials: Clinical trial failures could adversely affect the Company's ability to deliver shareholder expectations and damage reputation & relationship with veterinarians.
• Regulatory Risk: Any change in the regulations could impact the trials and operations of the Company.
  

Now we will analyze some key fundamental and shareholders statistics of Advanced Medical Solutions Group Plc. 

Financial and Operational Highlights (for six months ended 30 June 2021 as of 15 September 2021)

(Source: LSE Website) 

• On the back of the revival of markets towards more normal levels of elective surgery, the total revenue increased by 28.0% on a reported basis to £50.20 million.
• The increase in sales volumes resulted in adjusted profits surging by 133% to £12.40 million.
• The Net cash increased to £61.1 million from £53.8 million at the end of FY20, driven by improved trading and good operational cash flow.
• The investment in R&D increased to £4.4 million against £3.8 million in H1FY20, representing 8.7% of revenue, as the Company made solid progress across critical projects.
• The star performer in the Surgical Business Unit was the Advance Closure segment which posted a growth of 79% on a constant currency basis. In the Woundcare Business Unit, Exudate Management reported a growth of 41% on a constant currency basis.

Financial Ratios (H1FY21)

Share Price Performance Analysis

 (Source: Refinitiv, Research done by Kalkine Group)

On 23 September 2021, at 8:22 AM GMT+1, AMS’s shares traded at GBX 293.00, down by 0.51% against the previous day closing price. AMS’s 52-week High and Low were GBX 310.00 and GBX 194.00, respectively.

On a daily chart, the stock price is sustaining above the 20-day EMA at about GBX 275.00. Hence, there could be an uptick in the stock price in the near term. Also, the MACD line remained above the signal line, which suggest upside momentum in the stock price.

In the last one year, AMS’s stock has delivered a decent positive return of ~42.21%. Also, it has outperformed the FTSE All-Share Medical Equipment & Services index with a return of about 9.77% and the FTSE AIM UK 50 index with a return of about 38.06%. 

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

Business Outlook

AMS delivered an excellent performance in H1FY21, with revenue growth of 31.00% on a constant currency against H1FY20. The Company sees strong momentum and market penetration going forward. AMS made significant operational improvements by recent acquisitions and made progress on numerous strategic opportunities to strengthen its product portfolio and development pipeline. Post the approval of LiquiBandFix8 PMA; the Company plans to enter the $250 million US hernia fixation market. The Company maintains a robust financial with solid cash position. The Company also increased its R&D expenditure, and a strong product pipeline could drive revenue going forward.

Considering the Company’s product pipeline, recent success in trials, continued market expansion, and support from the valuation using the above method, we have given a “Speculative Buy” recommendation on Advanced Medical Solutions Group Plc at the current price of GBX 293.00 (as on 23 September 2021, at 8:22 AM GMT+1), with a lower-double digit upside potential based on 39.88x Price to NTM Earnings (approx.) on FY21E earnings per share (approx.)

*The reference data in this report has been partly sourced from REFINITIV.

*All forecasted figures and Peers/ Industry information have been taken from REFINITIV.

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

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

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