| Posted: 28-May-08 at 19:28 | IP Logged
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International Medical Devices+ (INT.L) – Interim results – NR*, 1.2p
Yr-end Sales Mkt Cap/ Adj PBT RptdPBT EPS PER FCF Yield EV/EBITDA
Aug (£m) Sales (x) (£m) (£m) (p) (x) (%) (x)
2007A 11.2 0.3 0.5 0.5 0.17 6.9 -14.1% 7.1
2008F 12.5 0.3 0.6 (0.7) 0.23 5.3 12.7% 6.1
2009F 14.5 0.3 1.5 1.5 0.33 3.6 27.1% 3.0
2010F 15.8 0.2 2.0 1.5 0.43 2.8 38.1% 1.8
Source: IMD, Shore Capital Stockbrokers
IMD has reported a solid set of interim results, above our expectations at the revenue, operating profit, adjusted PBT and EPS levels. The period saw further restructuring costs and an aborted acquisition which revealed an exceptional cost of c£1.3m – the outlook remains robust in the defensive healthcare sector (we expect growth of between 7% and 11% in the medical equipment and onsumables markets). We expect the current half through to August 2008 to show a clean period of profitable trading and this pulls through an upgrade to our expectations (for the current year and thereafter). The long-term outlook remains positive for organic growth, building upon the acquisitions made to date. IMD’s strategy remains to build operations by buying businesses and to grow these by consolidation of these into the group sales and distribution infrastructure.
The company reported H1 2007 revenues of c£5.1m; we had pencilled in IMD generating sales of c£5.8m for H1 2008. The out-turn of c£6.2m is thus pleasing – the company had the full benefit of recent acquisitions, though restructuring was still being completed with businesses being relocated and
management systems implemented. Holding our revenue forecast for the full year to August at current levels indicates a comfortable revenue target (in light of management’s robust comments on the outlook) for the current half of £6.3m. At the adjusted PBT level, we were expecting a H1 figure of around £160k with operations still building from consolidation of the acquisitions into the group. Tight operational cost control and synergies beginning to emerge revealed adjusted PBT for the period of c£300k – this is an encouraging number to us given the prospects for positive operational gearing from emerging economies of scale. Our EPS expectation was 0.04p compared to the result of 0.09p.
An exceptional charge pushed IMD into a loss position for the period at the reported level. This consisted of a mix of restructuring costs relating to management efficiencies, relocation costs and an aborted acquisition cost. IMD is now operating from just two sites: in Selby, Yorkshire and in Gloucester. We believe that the Selby operations in particular offer the prospect for additional scale economies. The opportunity to build the business with further acquisitions remains.
IMD is now operating through three divisions in Acute Care (focused upon hospital equipment and consumables), Devices (needles and specialist treatment equipment) and in Aged Care (covering specialist products for the wider market). Aged Care has seen some frustrating operational issues that
have held back sales and operating margins – in particular concerned with the product range. These appear well on the way to being resolved with additional product supply agreements being targeted. Sales of safety needles (Surety) have now commenced with the first orders being received from the NHS. Management is now looking at the prospects for international sales of safety needles, in particular applying for FDA approval in the USA with a third party local distributor based in Canada.
Holding our revenue forecast steady for the full year (holding out for the prospect of a further upgrade), our profit expectation increases with the restructuring benefits coming through; we therefore lower our cost base expectations. The benefits of the restructuring costs incurred in H1 appear be self-funding over the next 12 months. Our FY2008 adjusted PBT forecast rises from £0.5m to £0.6m and for FY2009 from £0.7m to £1.5m – with an additional c£1.0m of revenue now expected for the next financial year. Our FY2008 EPS expectation rises from 0.20p to 0.23p, but for FY2009F this rises from 0.22p to 0.33p.
IMD has seen considerable management change in the period with a new executive team taking over group operations under the experienced Bill McGrath. We believe that this change heralds the emergence of revenue and profit momentum for the company. IMD’s operations are growing and profitable and we now expect the company to begin to generate free cash flows. The valuation is inexpensive on a FY2009F PER of c3.6x (EV/EBITDA 3.0x) and a free cash flow yield of over 27%. We also note that the company trades well below its prospective NAV per share of c6.1p.
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Topic: International Medical - LSE:INT
