Creo Medical Group PLC

Creo Medical Group PLC (LON: CREO) is a FTSE AIM 100 index listed medical device entity focusing on the emerging field of surgical endoscopy.

Investment Highlights – SPECULATIVE BUY at GBX 144.50

• Aber Electronics’ Acquisition: The acquisition of Aber Electronics Limited complement the Company’s three-tiered 'Build, Buy, Partner' strategy since CREO was already a customer of Aber. The acquisition will enhance the key element of supply chain and bolster the CROMA Advanced Energy Platform.
• Robust Portfolio: CREO showed continued regulatory progress for its products as MicroBlate Flex got FDA 510(k) clearance, and the Company reported 326 granted patents and 810 pending applications as of 31 August 2021.
• Promising Outlook: It expects strong trends in H2 FY21 with increasing clinician education and training sites. Besides strong growth in the US and Europe, it has also enhanced direct presence in the APAC region. In a nutshell, the Group appeared optimistic for continued progress in FY22.
• Technical Indicator: From a technical standpoint, 14-day RSI (~43.09) is close to an oversold position, while the stock price is hovering between the lower and the middle Bollinger Bands.
• Valuation Multiples: In terms of valuation multiples on a trailing 12-month basis –EV/Sales, and Price/Book multiples are undervalued against the median of Health Care sector.

Key Risks

• Pandemic Led Disruption: The restrictions on elective surgery had raised the likelihood of the commercial execution risk. The increased financial pressure on governments and hospitals caused by the Covid-19 pandemic has exposed CREO to pricing and reimbursement risk.
• History of Operating Losses: The Company is not yet profitable and can face liquidity crunch in absence of substantial capital.

Recent News

Acquisition of Aber Electronics Limited: On 12 November 2021, Creo Medical announced the acquisition of Aber Electronics Limited (manufacturer of power amplifiers and radio frequency products) for a fixed consideration.

H1 FY21 Financial Highlights (for the six-month period ended 30 June 2021, as on 30 September 2021)

 (Source: Company Website)

• Strong Orders: The Group experienced solid orders for Speedboat Inject across the US and Europe.
• Operational Progress: During H1 FY21, it reported total sales of £12.9 million (H1 FY20: £0.0 million).
• Operating Loss: Its operation loss slightly worsened to £11.4 million in H1 FY21 from £10.6 million in H1 FY20, reflecting the impact of £0.6 million in share-based payments.

One Year Share Price Chart

 (Data Source: Refinitiv, Analysis by Kalkine Group)

Valuation Methodology: Price/Sales Approach (FY21) (Illustrative)

Conclusion

CREO continued research & development initiatives and strengthened commercial infrastructure with the growth in clinical network and increased knowledge about its products. Moreover, the Group expects positive trends to continue in H2 FY21 with increasing clinician education and training sites. Following the successful placing of additional £36.3 million, CREO has solid balance sheet to pursue strategic growth opportunities.

Notwithstanding, investors are recommended to punt on this stock post evaluation their risk-return profile since it is a speculative counter with small market capitalization. The stock made a 52-week high and low of GBX 235.79 and GBX 132.00, respectively.

Based on the strong revenue growth, positive trends, growth in clinical network, strengthened commercial infrastructure, and valuation conducted above, we have given a “SPECULATIVE BUY” recommendation on Creo Medical Group PLC at the closing price of GBX 144.50 (as on 7 December 2021), with lower double-digit upside potential based on 11.51x Price/NTM Sales Per Share (approx.) on FY21E Sales (approx.).

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level (indicative stop-loss price).

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

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

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