Tristel battles back from impact of Covid and Brexit
Tristel, which makes products to stop infection in hospitals, saw its share price take a knock after a trading update which was roundly misunderstood.
Revenue for the year to June 30 looks like being flat and profit slightly down but top brokers are keeping faith with the Cambridgeshire business for the immediate future.
Most importantly, Tristel believes business is starting to gather pace again after a slow crawl out of Covid – if indeed the UK can control the latest wave of the pandemic – and the impact of Brexit.
Hospitals generally put the brake on buying the product as the crisis hit its peak in the past year but Tristel reports signs of improved activity as outpatient departments get busier and notes rising demand for its disinfectants.
Tristel has been more than honest. In the last update on 25 April, the company said that second half sales in all markets had started slowly because COVID-19 was causing the postponement of hospital admissions and fewer patient examinations with medical devices that Tristel’s products disinfect. Brexit was also starting to impact, management said.
The effect of the pandemic was being felt more acutely in the UK than in overseas markets. Conversely, sales of Tristel’s surface disinfectant products were ahead compared to last year.
In April, sales for the year ending 30 June were anticipated to be £31 million and pre-tax profit (before share-based payments) no less than £5m.
As the fourth quarter progressed, demand for the device-based products accelerated as hospital out-patient departments gradually returned to pre-pandemic levels of activity. Surface disinfectant product sales have continued to grow.
It is expected that the upturn in sales activity, combined with a gross margin maintained at 80 per cent and tight control over operating costs, will translate into sales of £31m (2020: £31.7m) and pre-tax profit of £5.5m (2020: £7.1m) for the year.
First the confessional! In 2017, Tristel made an equity investment in a medical device company focussed upon women’s health. The investment led to a close collaboration between the two companies which has been a key influence in the development of Tristel’s 3T App and new exciting product development initiatives that are underway involving AI, and for which several patent applications have been made.
The company’s shareholders had initiated a sale process for the business to enable the technology to find a home within a larger medical device company with the resources to succeed in the US market.
The process has not been successful to date and while the company continues to operate as a going concern, Tristel will take a conservative approach to the carrying value of the investment, totalling £0.8m, and fully impair this in the financial year just ended. This expense is non-cash and will be recorded as an exceptional item.
On the upside, Tristel recently succeeded in gaining its first regulatory approval in Canada for the Duo OPH disinfectant for ophthalmic devices, and an enhanced approval for additional efficacy claims from the USA EPA for the Jet surface disinfectant product.
The company has £8m cash compared to £6.2m last time and the board has committed to declare a final dividend of 3.93p, making a total of 6.55p for the year. This distribution level represents a one-off divergence from the company’s stated dividend policy of two-times cover.
Towards the end of the financial year the company witnessed an increase in hospital admissions and patient examinations. The company is confident that sales and profits growth will resume this year and the investments made in people, systems and new market registrations will lay the foundation for strong growth in the years ahead.
CEO Paul Swinney, said: “The second half of the year was a frustrating period for the company. Since Spring 2020 our ordinarily stable and predictable business has been disrupted by both Brexit and the pandemic.
“We have waited for signs that healthcare provision in our main 25 markets would return to normal, and finally we are seeing signs of this occurring.”