Stock of the week: ConvaTec
As health care equipment group, ConvaTec, joins the FTSE 100 after the recent reshuffle, we have upgraded the firm to a ‘buy’. The group operates four main businesses, Wound Therapy, Ostomy Care, Continence & Critical Care and Infusion Devices, each of which have at least a top three position in each of the respective markets. The company’s divisions provide medical consumables which are tied to the management of chronic medical conditions, the demand for which generates consistent recurring revenues as these are defensive markets.
Investors should note that the firm has strong growth prospects due to ageing populations and the rising prevalence of chronic conditions such as diabetes. Furthermore, patients with chronic diseases are living for longer and often suffer the condition for the rest of their lives.
ConvaTec has long serving management on-board with many years of experience who intend on having a conservative dividend pay-out ratio of 35-45% of adjusted net income. The shares trade on a forward P/E ratio of 16x, which is comparable to its peers. We start our coverage of the company with a ‘buy’ recommendation for investors seeking a balanced return and willing to accept a medium level of risk.