ConvaTec Group PLC (LON: CTEC)  

ConvaTec Group PLC (LON: CTEC) is an FTSE 250 index listed technology and medical products Company specializing in wound treatment, continence and critical care, infusion devices, and ostomy care. The Company’s products provide benefits such as infection prevention, protection of at-risk skin, improved patient outcomes and reduced total cost of care.

Recent Dividend Payments

CTEC had paid an interim dividend of 1.717 US cents per share attributable for H1 FY21 on 14 October 2021 with an ex-dividend date of 02 September 2021, driven by robust bottom-line profitability achieved during the period.

Growth Prospects

• New Product Launches: CTEC remained on track regarding the launch of new products such as MioAdvance Extended Wear Infusion Sets and the GentleCathTM Air male catheters in 2022.
• Acquisition Benefits: On 28 January 2022, the Company updated that it would acquire Triad Life Sciences Inc. for an initial consideration of USD 125 million with potential USD 50 million for short-term milestones. The transaction is expected to get completed by Q1 FY22.
• Board Changes: CTEC has appointed Jonny Mason as a CFO with effect from 31 January 2022. He has an extensive track record in publicly listed and international businesses.

Key Risks

• Compliance Risk: The Company operates in a highly regulated market, and any non-compliance with rules and laws could lead to penalties and loss of reputation.
• Potential Delay in Product Launches: Any delay in rolling out treatments could lead to a loss in revenue and market share to competitors.
• Record UK Inflation: The annual rate of UK consumer price inflation reached 5.5% in January 2022, the highest since March 1992. Thus, it can adversely impact the London equities.
• Wrong Strategic Choices: The failure of partner relationships could adversely impact the business in the near term.

Key Fundamental Statistics & Shareholding Pattern of ConvaTec Group PLC.

Novo Nordisk Foundation is the most significant shareholder as it holds nearly 395.32 million shares as of 31 December 2021.       

Q3 FY21 Trading Update (for the three months ended 30 September 2021, as of 29 October 2021)

(Source: Company Filings)

• Decent Revenue Growth: The Company posted decent revenue growth of around 5.4% on an organic and constant currency basis during 9M FY21, where revenues for Q3 FY21 was up 2.7% in constant currency and 2.2% on an organic basis.
• Balance Sheet: CTEC had strengthened the balance sheet with the successful issuance of USD 500 million 2029 senior unsecured notes.

. H1 FY21 Financial Highlights (for the six months ended 30 June 2021, as of 30 July 2021)

(Source: Company Filings)

• Top-Line Revenue: The company reported decent revenue growth of around 11.0%, driven by robust growth in Advanced Wound Care, against the weak COVID-depressed comparative, coupled with good growth in Infusion Care and solid performances in Continence & Critical Care and Ostomy Care.
• Profitability: The operating profit was USD 136 million, 19.9% growth on a YoY basis, reflecting the strong revenue growth and gross margin improvement.
• Balance Sheet: The group maintained a solid balance sheet with leverage of 2.0x Net Debt/Adjusted EBITDA and reported a free cash flow of USD 106 million.
  

Financial Ratios (H1 FY21)

Share Price Performance Analysis 

(Source: Refinitiv; Analysis done by Kalkine Group)

On 24 February 2022, at 11:09 AM GMT, CTEC’s shares were trading at GBX 166.60, down by around 3.39% from the previous day closing price. Stock 52-week High and Low were GBX 265.00 and GBX 165.30, respectively.

From a technical standpoint, CTEC is hovering between the lower Bollinger band and the middle Bollinger band, indicating an upside potential in the stock price. Moreover, the 14-days RSI of ~34.59 supports an upside momentum in the stock price. 

Valuation Methodology: Price/Earnings Approach (FY22E) (Illustrative)

Business Outlook

The Company had maintained strong business momentum and made further strategic progress implementing key transformation initiatives and improving execution. The Company will strengthen its Wound Care business in the US with the acquisition of Triad Life Sciences Inc. Moreover, CTEC expected FY21 organic revenue growth to remain towards the upper end of guidance ranging from 3.5% to 5%. Meanwhile, the Company had forecasted FY21 adjusted EBIT margin to be between 18.0-19.0% on a constant currency. However, the operational headwinds created by logistics and raw material inflation had dented several business segments. Nonetheless, the Company remained focused on achieving sustainable and profitable growth driven by new product launches, strong liquidity profile and recent acquisitions.

Markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Considering the new product launches, robust profitability, regular dividend payments, decent financial performance during H1 FY21, and support from the valuation as done using the above method, we have given a “BUY” recommendation on ConvaTec Group PLC at the current market price of GBX 166.60 (as of 24 February 2022 at 11:09 AM GMT), with lower-double digit upside potential based on 20.00x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.).

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Note 3: Dividend Yield may vary as per the stock price movement.

Note 4: Target Price refers to a price level which the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios. 

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavorable movement in the stock prices.

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.

Kalkine Media Limited, an affiliate of Kalkine Limited, may have received, or be entitled to receive, financial consideration in connection with providing information about certain entity(s) covered on its website.