Stock of the week: Convatec
Last week, Convatec reported its full year results which sent the shares up 7% on the day. The global medical supplies and technologies business reported revenue growth of 4.5%, including 2.3% of organic growth. It also turned from a loss last year of 15c per share to a profit of 8c a share on a reported basis. Even on an adjusted basis there was an impressive improvement, beating market expectations.
The underlying market which Convatec serves in is defensive in nature, but growth opportunities exist from ageing populations, the increased prevalence of chronic conditions and the fact that patients are living longer with these conditions. Of late, the group has experienced good growth with its Continence & Critical Care and Infusion Devices, while in Ostomy Care it has seen sales in the US, Latin America, Japan and China continue with good momentum. Investors should note that throughout the last year, it has expanded its portfolio with 16 new product launches.
The group’s full year results were particularly impressive given that in the market update, it reflected upon the many troubles it faced during 2017, including difficulties experienced in transferring manufacturing capabilities from the US to the Dominican Republic. We believe the difficulties the group face are temporary in nature and investors should appreciate that management remain optimistic and its guidance for 2018 is one of further improvement.
Overall, the group has shown some positive progress, it operates in a defensive market with significant growth opportunities. While the shares are a long way off from its highs, we believe this is a great opportunity to pick these shares up for the long-term. As a result, we recommend Convatec as a ‘buy’ for investors seeking a recovery potential and willing to accept a higher level of risk.