Tristel Plc (TSTL) is a UK based company that is into development, manufacturing and supplying of hygiene, infection and contamination control products. The company was founded in the year 1993 and is headquartered in Snailwell, the United Kingdom. The company’s business segments are Contamination control, Animal Healthcare and Human healthcare. The company operates worldwide through its subsidiaries in Germany, Poland, Russia, Hong Kong, Australia, China, Japan, USA and sells its products via third-party distributors in more than thirty other countries. It uses the Tristel brand for products related to hospital infection prevention and control. Crystel brand is used to promote products related to pharmaceutical and personal care industry. Anistel brand name is being used to sell product related to animal health infection and control.

Key Statistics


Key Management Team
Paul Swinney: Chief Executive, Executive Director
Elizabeth Dixon: Group Finance Director, Executive Director

Top 10 Shareholders
Hargreaves Lansdown Asset Management Ltd.; 3.04 million and 6.86%.
Montanaro Asset Management Ltd.; 2.57 million and 5.80%.
Hargreaves Lansdown Stockbrokers Ltd.; 2.32 million and 5.23%.
Unicorn Asset Management Ltd.; 2.25 million and 5.08%.
Investec Wealth & Investment Ltd.; 2.15 million and 4.85%.
Amati Global Investors Ltd.; 1.84 million and 4.16%.
AXA Investment Managers UK Ltd.; 1.30 million and 2.93%.
BlackRock Investment Management (UK) Ltd.;1.29 million and 2.92%.
Jarvis Investment Management Ltd.; 726.00 thousand and 1.64%.
Cavendish Asset Management Ltd.; 470.00 thousand and 1.06%.

SWOT Analysis
Strengths
The company has a strong market presence and ensure easy accessibility of its products. It operates worldwide with its subsidiaries and third-party distributors.
The company’s strong financial position helps the firm to make further investments and expansion.
Weaknesses
Increased recruitment costs due to lack of organisational commitment and high employee turnover. This can also be observed with an increase in the administrative cost of the company.
Opportunities
The company is having two approvals from EPA and is waiting for approval from US Food and drug administration (FDA). This will help them to explore new markets and grow its market share.
Threats
The company holds multiple licenses to operate in different regions. The significant risk for the company is to maintain worldwide legal and regulatory compliance.

Financial Results and Review - FY2018 (£, thousand)


(Source: Annual Report, Company Website)

Financial Commentary - FY2018
The company reported revenue of £22,220 thousand for the year ending June 2018 as compared to £20,273 thousand in 2017 for the same period. There was an increase of 9.6 per cent in revenue, due to the growth of 19 per cent in the overseas sales in FY2018. The company’s reported administrative expenses had also increased marginally in comparison with the last year mainly due to an increase in the number of employees in all departments. Administrative expenses had been raised from £10,342 thousand in FY2017 to £10,971 thousand in FY2018. The company’s share-based payments had increased to £665 thousand in FY 2018 due to the approval of the share option scheme by the company. The company’s profit before tax was increased to £4,006 thousand in FY2018 as compared to £3,966 thousand FY2017. The company’s profit after tax was decreased to £3,272 (2017: £3,417) thousand in FY2018 due to an increase in the overseas tax and UK corporation tax.The company’s cash inflow from operating activities had surged from £4,352 in FY2017 to £4,495 thousand in FY2018 due to an increase in the operating profit.

Ratios

(Source: Thomson Reuters)

Ratios Commentary
Gross margin reported was 77.30 per cent in the financial year 2018 and remained constant against the previous year. However, the reported margin was higher than the industry median. EBITDA margin of 25.00 per cent for the financial year 2018 stood considerably higher than the industry median of 21.30 per cent. Return on equity stood at 19.00 per cent which was higher than the industry median of 17.10 per cent. At liquidity front, Tristel Plc current ratio was higher than the industry median of 2.03, reflecting sufficient current assets to pay its short-term obligations. On leverage front, the asset-equity ratio was significantly lower as compared to the industry median.
 
Share Performance

(Source: Thomson Reuters)

On 27th February 2019, Tristel Plc shares closed at GBX 292.5 remained constant against its previous day closing price. Stock’s 52 weeks High and Low is GBX 349.70/GBX 200.00. At the closing price, the share was trading 16.36 per cent lower than its 52w High and 46.25 per cent higher than its 52w low. From the previous three months, Tristel Plc share price rose significantly by 30.00 per cent, and in the last one year, the stock has delivered 5.41 per cent returns. Stock’s average traded volume for 5 days was 48,063.20; 30 days - 38,514.43 and 90 days - 40,763.58. The average traded volume for 5 days was up by 24.79 per cent as compared to 30 days average traded volume. On the valuation front, the stock was trading at a trailing twelve months PE multiple of 30x as compared to the industry median of 11.4x. The company’s stock beta was 1.08, reflecting higher volatility as compared to the benchmark index. Total outstanding market capitalisation was around £129.02 million and a dividend yield of 1.72 per cent.
 
Valuation Methodology
 
Method 1: EV/Sales Multiple Approach (NTM)


Method 2: EV/EBITDA Multiple Approach (NTM) (EBITDA (FY19E) approximately)


While valuing Tristel PLC on EV/EBITDA Multiple, we have considered Next Twelve Month (NTM) EV/EBITDA of its peers, which were Xvivo Perfusion AB (NTM EV/EBITDA stood at 61x), Omega Diagnostics Group PLC (NTM EV/EBITDA stood at 87.57x), Humanoptics AG (NTM EV/EBITDA stood at 0x), Scientific Digital Imaging PLC (NTM EV/EBITDA stood at 11x), Surgical Innovations Group PLC (NTM EV/EBITDA stood at 10x),  and Bactiguard Holding AB (NTM EV/EBITDA stood at 27.34x).

(Note: All forecasted figures and peers have been taken from Thomson Reuters).

Growth Prospects and Risks Assessments
The company adopted ‘know no boundaries’ approach which helps in excellent business decision making and execution ability. The Company is compliant to the new versions of the following standards, ISO13485:2016 and ISO9001:2015. The company’s disaster recovery plan is in place and reviewed regularly. The company continuously reallocate its people, production and systems to ensure regular supply. The significant risk for the company is to maintain worldwide legal and regulatory compliance. The company’s performance can be impacted by macroeconomic conditions and changes such as inflation or public spending.

Recent News
On 26th February 2019 Tristel Plc planning for the international expansion. The company is waiting for US food and Drug Administration (FDA) approval and is confident that approval will come on time. Apart from that company has two approvals from EPA (Environmental Protection Agency) that allows the company to sell its products overseas. Due to Brexit effect, the company has shifted its few labelling activities to the Netherlands for medical devices products. More than half of the sales are coming outside the United Kingdom.

Conclusion
While broad-based challenges can be seen ahead of the group, given the current trading levels which indicate the stock movement towards 52-week high with support coming from growth drivers like increased revenue mainly because of increased overseas sales and increased cash inflow from operations. The company is impacted by Brexit but still had been able to meet expected sales expectations and shifted its few labelling activities to the Netherlands for medical devices products. Based on the strong growth prospects of the company and the valuation done using the above two methods, we have given a BUY recommendation with a high single-digit upside potential range above GBX 310 to GBX 323 (based on 19.17x NTM EV/EBITDA on FY19E EBITDA and 5.5x NTM EV/Sales on FY19E sales).

Note- GBp or GBX are interchangeably used for Pence Sterling. 

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