Advanced Medical Solutions Group PLC

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.

AMS had paid an interim dividend of 0.48 pence per share on 22 October 2021, while the ex-dividend date was 23 September 2021.

Investment Rationale for Valuation – Sell at GBX 335.25

• Weak Shareholders’ Returns: The Company’s dividend yield and Return on Equity remained lower than the respective multiples of the Medical Equipment & Services industry as of 29 October 2021.
• Decline in Net Cash: The net cash got reduced from £67.9 million as of 30 June 2020 to £61.1 million as of 30 June 2021.
• Trading Near 52 Week High: AMS is currently trading very close to the 52-week high, making it difficult for AMS to show any upside potential in the stock price.
• Unfavourable Technical Indicators: From a technical standpoint, AMS is hovering around the upper Bollinger band, indicating a correction in the stock price.
• Relative Strength Index: The 14-days RSI of ~68.77 indicates an overbought zone.

Key Risks

• 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.
• Highly Competitive Market: The biotechnology and pharmaceutical industries are very competitive. The Group’s competitors include major multinational pharmaceutical companies, biotechnology companies and research institutions.

H1 FY21 Financial Highlights (for the six months ended 30 June 2021, as of 15 September 2021)

(Source: LSE Website)

• Robust Top-line Business: The total revenue increased by 28.0% on a reported basis to £50.20 million, boosted by the recovery of the elective surgery division.
• R&D Expenditure: The investment in R&D increased to £4.4 million against £3.8 million in H1 FY20, representing 8.7% of revenue.

One Year Share Price Chart

 (Source: REFINITIV; Analysis done by Kalkine Group)

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

Conclusion

AMS made significant operational improvements because of the recent acquisitions and made progress on numerous strategic opportunities to strengthen its product portfolio and development pipeline. The stock price recently reached a 52-week high and currently trading very close to it. Thus, it would have very little probability of showing any upside potential. Hence, it would be prudent to liquidate the position and book profit at the current levels for the clients based on their risk appetite. The stock made a 52-week low and high of GBX 199.80 and GBX 341.60, respectively. 

Based on the decline in net cash during H1 FY21, lower dividend yield against the industry, and unfavourable valuation as done using the above method, we have given a “SELL” recommendation on Advanced Medical Solutions Group PLC at the current market price of GBX 335.25 (as on 09 November 2021 at 08:24 AM GMT). 

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

*All forecasted figures and Peer information have been taken from REFINITIV.

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

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