Revenue growth slipped into the red in Q2 as temporary closures of clinics and postponements of non-acute surgical treatments weighed on the Ophthalmic Devices segment. While the cash-cow Microsurgery segment managed to stay in the black, it couldn’t prevent significant erosion in the operating margin, which was further pressurised by higher R&D spend. Q3 has got off to a weak start, nevertheless, if the early encouraging signs seen in China are visible in the US and Europe, Q4 could see some improvement.
Companies: Carl Zeiss Meditec
FY19/20 started on a positive note with double-digit sales growth for both Microsurgery and Ophthalmic Devices segments, backed by robust demand in the US and Asia-Pacific. Operating profit was also up in double-digits, though the benefits of the favourable product mix were partly offset by higher R&D investments. While FY19/20 EBIT margin guidance was reiterated, management has turned slightly cautious with its sales growth outlook. The outbreak of the corona virus also poses a temporary headwind, particularly on the high-margin consumables business.
Sales growth was at a record high in FY18/19 on the back of new product launches in the ophthalmic devices and microsurgery segments. While the EBIT margin also touched new highs, driven by operational leverage and favourable product mix, profitability was partly held back by higher investments in R&D/digitalisation. As the addressable market offers significant growth opportunities, management would pump substantial money into R&D, along with increased sales and marketing spend. Ergo, margin expansion could slow down in the mid-term.
Sales momentum accelerated significantly in Q3 led by broad-based growth across the ophthalmology segment, particularly in Asia. Growth in adjusted EBIT was even higher on the back of the increasing proportion of high margin recurring revenue in the total sales mix. Post the robust show ytd, FY18/19 sales and profitability guidance has been raised. Nonetheless, given the planned investments into R&D in the next year, we foresee limited margin expansion in FY19/20.
Despite the deceleration in revenue growth (+7.7%), the adjusted EBIT margin snowballed 25.5% in Q2, benefiting from an improvement in the product mix, a favourable currency environment and effective cost management. As the recently-launched products have the potential to put the business back on track, the revenue guidance has been reiterated. Given the robust development in earnings in H1, the FY18/19 EBIT guidance has been upgraded.
The year started well for CZM with revenue growing 9% (at CER) in Q1, led by robust growth momentum in Ophthalmology and Microsurgery. Geographically, APAC and EMEA reported double-digit growth, while the Americas traded in the red. While operating profit surged 23.1%, due to temporarily reduced R&D expenses, higher financial and tax expenses meant that the EPS was flat yoy. Given CZM’s robust product portfolio, the company remains on track to meet its revenue and profitability targets for FY18/19.
although sales in the Ophthalmic Devices segment missed expectations in Q4, the fourth consecutive quarter of double-digit growth in the Microsurgery division ensured that FY17/18 revenue targets were met. Moreover, robust operational leverage in Microsurgery and a favourable product mix in Ophthalmic Devices took the adjusted operating margin towards the higher end of the guidance range for FY17/18. Given the strong traction for newer products in both the businesses, we expect the positive growth trajectory to continue in FY18/19 as well.
CZM reported a robust acceleration in sales in Q3 17/18 with broad-based growth across regions and business segments – momentum was driven by the strong traction for recently-launched products. While Microsurgery recorded a third consecutive quarter of double-digit growth (led by the US), the Ophthalmic Devices segment also entered double-digit territory (fuelled by the US and Asia-Pacific). Along with margin expansion of 140bp during the quarter, CZM remains on track to meet its revenue and profitability targets for FY18.
With broad-based growth across all businesses and regions during the quarter, CZM reported a 9.6% upsurge in the top-line on an underlying basis. However, currency played spoilsport and lowered the revenue growth to 3.7%. Profitability was also under pressure, impacted by unfavourable product mix and increased investments into R&D. However, with a growing proportion of high margin recurring revenue in the total sales mix, we expect the margin to improve from here on.
Carl Zeiss Meditec (CZM) released a mixed set of Q1 17/18 results, in which sales came in above our estimates but profitability was a tad below expectations. Revenue at CER increased by 9.5% driven by strong growth momentum in the Microsurgery segment (+13.4%; accounts for c.27% of sales). Robust demand for recently-launched products bolstered growth during the quarter (neurosurgery platform KINEVO 900 and dental microscope EXTARO 300). The Ophthalmic Devices segment also performed well (+8.2%; accounts for c.73% of sales), benefiting from the launch of CLARUS 500 fundus imaging system in the diagnostics space and market share gains in the intraocular lenses business (premium offering ‘AT LARA’ received well by the markets).
Geographically, the Americas region was the principal growth contributor (+11.8%; accounts for c.32% of sales) aided by the robust performance in the US diagnostics space. The EMEA region surged 10.8% (accounts for c.31% of sales), benefiting from the uptick in demand in Germany, France and Spain. On a tough prior year comparable (+22.9%), the APAC region was up 6.6% (accounts for c.37% of sales) as the strong growth in China, South Korea and Australia was slightly offset by a subdued performance in Japan.
After taking into consideration currency headwinds of 4.2%, the reported revenue increased by 5.3% in Q1 17/18. The adjusted EBIT margin improved 10bp to reach 13.5% as the benefits of a favourable product mix were offset by higher R&D spend and adverse FX impacts. Management has reiterated its FY17/18 revenue and profitability guidance.
Carl Zeiss Meditec ‘CZM’ released its Q4 17 results which were above our estimates as well as market consensus. Revenue at CER surged 15.3% (c.4% above the street’s estimates) led by higher than expected sales in the lynchpin Ophthalmic Devices segment (+19.7%; accounts for c.74% of Q4 17 sales). Within the segment, momentum was driven by the refractive lasers and intraocular lenses/IOL businesses while the diagnostic division also performed well despite stiff competition. The Microsurgery segment grew 4.3% (accounts for c.26% of Q4 17 sales) with both the visualisation and intraoperative radiotherapy businesses contributing to the growth.
Geographically, the growth was broad-based, wherein the APAC region grew 16.6% (accounts for c.36% of Q4 17 sales) on the back of strong demand in China (particularly in the private sector), South-East Asia, Korea and India (Japan recorded low single-digit growth in FY17). The EMEA region surged 16.4% (accounts for c.32% of Q4 17 sales) with Germany, Italy and the Benelux region being the key contributors (Spain, the UK and the Middle East continued to face challenging market conditions). The Americas advanced 13.6% (accounts for c.32% of Q4 17 sales) led by strong growth in the refractive laser and diagnostics businesses in the US (the US accounts for c.80% of the Americas’ sales).
After taking into consideration currency headwinds of 3.1%, the reported revenue increased by 12.2% during the quarter. However, with increased investments in new product launches, the adjusted EBIT margin declined c.90bp yoy to reach 15.1%.
For FY17, the reported revenue came in at the upper end of the guidance range (€1,190m vs. target: €1,150-1,200m) with the adjusted operating margin advancing 10bp yoy to 14.8% (in line with guidance of 13-15%). In addition, higher financial income (mainly forex gains) and a lower tax rate (vs FY16) underpinned the c.30% growth in earnings (EPS €1.57 per share vs. €1.21 in FY16). Management has proposed a dividend of €0.55 per share for FY17 (pay-out ratio: c.36%).
For FY18, management anticipates revenue to grow at least in line with the industry (low to mid single-digit growth at CER). Moreover, the adjusted EBIT margin is expected to be in the 14-16% range in the mid-term (+100bp vs earlier guidance).
Carl Zeiss Meditec (CZM) reported a decent set of Q2 17 results, wherein organic revenue came in marginally below our estimates but profitability outperformed. Revenue at CER was up 8.7% (vs AV’s estimate: +10%; Q1 17: +5.4%) on the back of sustained growth in the ophthalmic devices segment (+10.9% vs AV’s estimate: +12.5%; accounts for c.73% of Q2 17 revenue). Within the segment, the growth was driven by the refractive laser and the cataract business (intraocular lenses ‘IOL’ and consumables). In the microsurgery segment, the growth momentum accelerated to +3.3% (vs AV’s estimate: +3%; accounts for c.27% of Q2 17 revenue) led by increased demand for new applications/upgrades in the neuro/ENT division.
Geographically, the APAC region was once again the primary growth contributor (+14.8%; accounts for c.39% of Q2 17 revenue) driven by the robust performance in China, India and South-East Asia. The Americas was up 4.7% (accounts for c.31% of Q2 17 revenue), benefiting from the positive development in the US (Latin America was flat yoy). During the quarter, the EMEA region returned to growth (+5.6% vs Q1 17: -6.6%; accounts for c.30% of Q2 17 revenue) on the back of good performance in Germany and the Benelux area.
Total revenue increased by 10.5% (vs AV’s estimate: +10.8%), reflecting a 1.8% currency tailwind. The biggest positive was the beat in the operating margin, benefiting from a favourable product mix (16.8% vs AV’s estimate: 15.2%). For FY17, management expects total revenue to be in the €1,150-1,200m range and the underlying operating margin to be within the mid-term target range of 13-15%.
Carl Zeiss Meditec ‘CZM’ released Q1 FY17 results ahead of our estimates as well as the market consensus. Revenue at CER increased by 5.4% (vs AV’s estimate: +4.8%), largely driven by positive growth momentum in the ophthalmic devices segment (+7.4% vs AV’s estimate: +6.2%; accounts for c.74% of Q1 17 revenue). Within the segment, robust development in the refractive laser business and market share gain in the surgical ophthalmology division were the key growth contributors. The momentum turned positive in the microsurgery segment (+0.2% vs AV’s estimate: +1%; FY16: -0.9%; accounts for c.26% of Q1 17 revenue) with modest growth in the Neuro/ENT division.
Geographically, the growth momentum accelerated sequentially in the APAC region (+22.9% vs Q4 16: +11.3%; accounts for c.38% of Q1 17 revenue), driven by robust performances in China, India and South Korea. After four quarters of negative growth, the Americas region entered into positive territory (+0.7%; accounts for c.32% of Q1 17 revenue) during the quarter, on the back of a good performance in North America. The dismal performance continued in the EMEA region (-6.6% vs Q4 16: -6.4%; accounts for c.30% of Q1 17 revenue) due to weak market trends in the UK, Southern Europe and the Middle East.
Total revenue increased by 6.6% (vs AV’s estimate: +3.3%), reflecting a +1.2% currency impact. The adjusted EBIT margin came in at 13.4% (+80bp yoy; AV’s estimate: +13.6%), on the back of a favourable product mix. Moreover, better than expected financial income (led by hedging gains) nudged the adjusted EPS to €0.29 per share (vs AV’s estimate: €0.28; reported EPS: €0.38 including a positive special effect from asset disposals).
In March 2017, CZM increased its authorised share capital by 10% (8,130,960 new shares were issued at a price of €38.94 per share), generating cash proceeds of €317m. As CZM’s parent ‘Carl Zeiss AG’ didn’t participate in the share issue, the company’s free float increased to 41% (vs 35% previously).
Carl Zeiss Meditec’s (CZM) Q4 FY16 revenue came in below our estimates but profitability outperformed. Revenue at CER was down 1.9% (vs AV estimate: +4.3%), primarily due to a slowdown in the ophthalmology (-8.3% vs AV estimate: +7%; accounts for c.31% of Q4 16 revenue) and microsurgery segments (-4.5% vs AV estimate: +0.5%; accounts for c.29% of Q4 16 revenue). High prior year comparables suppressed the growth in surgical ophthalmology and microsurgery (+34% and +24%, respectively) during the quarter. However, the ophthalmic systems business was up 5.7% (vs AV estimate: +5%; accounts for c.40% of Q4 16 revenue), wherein, the good performance in the refractive laser business was slightly offset by competitive pressure in the diagnostic business.
Geographically, the growth momentum sequentially decelerated in the APAC region (+11.3% vs Q3 16: +25.3%; accounts for c.36% of Q4 16 revenue), primarily due to a slowdown in Japan. The dismal performance continued in the EMEA region (-6.4% vs Q3 16: -6%; accounts for c.31% of Q4 16 revenue), on the back of the challenging economic/political situation in Southern Europe and the Middle East. The Americas region was also under pressure (-9.7% vs Q3 16: -6.7%; accounts for c.33% of Q4 16 revenue) due to the intense competition in the US diagnostics market and the weak macro environment in Brazil.
Total revenue decreased by 0.5% (vs AV estimate: +6.5%), reflecting a +1.4% currency effect. However, the EBIT margin strengthened to 15.1% (vs AV estimate: 13.4%), largely driven by a favourable product mix in the ‘cash cow’ microsurgery business (25.4% vs AV estimate: 21.9%). Moreover, a lower than expected tax expense further underpinned the EPS (€0.38 per share vs AV estimate: €0.28).
For FY16, the total revenue (€1,088m) came in at the lower end of the company’s guidance (€1,080-1,120m). Similarly, the 14.2% EBIT margin was also within management’s expectation (13-15%). Management has proposed a dividend of €0.42 per share (vs €0.38 in FY15), which translates into a c.35% payout ratio. For FY17, management expects revenue to grow at least in par with market growth (low to mid single-digit) and the EBIT margin to be in the 13-15% range.
Carl Zeiss Meditec (CZM) released Q3 FY16 results broadly in line with market consensus. All the sales growth numbers are at CER unless specified otherwise. Revenue increased by 2.9% (vs Q2 16: +6.7%), largely due to slower growth in the ophthalmic systems segment (+1.7% vs Q2 16: +12.9%; accounts for c.39% of Q3 16 revenue). Stiff competition in the diagnostic business and a high prior year comparable (Q3 15: +12.6%) lowered the growth of the segment. Revenue in the microsurgery segment also slumped by 2.0% (vs Q2 16: 3.5%; accounts for c.25% of Q3 16 revenue), on the back of a tough comparable in the previous year. However, the surgical ophthalmology revenue accelerated by +8.1% (vs Q2 16: +2.9%; accounts for c.36% of Q3 16 revenue), once again fuelled by double-digit growth in the IOL business.
Geographically, the APAC region (+25.3% vs Q2 16: +17.1%; accounts for c.36% of Q3 16 revenue) was the largest growth contributor to the business due to strong demand in China and South Korea. However, the growth momentum turned negative in the EMEA region (-6.0% vs Q2 16: +3.7%; accounts for c.33% of Q3 16 revenue) due to sluggish demand in Southern Europe and the Middle East. The dismal performance continued in the Americas region (-6.7% vs Q2 16: -0.4%; accounts for c.31% of Q3 16 revenue), primarily due to the intense competitive environment in the US and ongoing macro headwinds in Brazil.
The total reported revenue increased by 2.8% (vs Q2 16: +8.3%) as the FX contribution was minimal during the quarter (-0.1% vs Q2 16: +1.6%). The EBIT margin weakened to 13.7% (vs Q2 16: 15.5%), largely attributable to planned R&D investments in the microsurgery segment (margin down to 16.6% vs Q2 16: 26.1%). Furthermore, unfavourable currency movements led to a net finance expense of €6.9m (vs Q2 16: €1.4m income), lowering the EPS to €0.24 per share (vs Q2 16: €0.38 per share).
Management has maintained its FY16 revenue guidance at €1,080-1,120m and the EBIT margin guidance at 13-15%.
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Much has been written about the effects of the virus on the world and on the stock market. Here is one analyst’s take on some of the likely impacts on the way we should look at companies. This article was originally produced as a blog, “10 Changes Post Virus”, which was published a few weeks ago.
Companies: AGY ARBB ARIX DNL GDR NSF PCA PIN PHNX PHP RE/ RECI STX SCE SIXH TRX SHED VTA
Further to the announcement on 9 April of Omega’s participation in a UK Rapid Test Consortium (UK-RTC), a point-of-care COVID-19 antibody test programme, the UK-RTC confirmed today that it is on track to reach a design freeze in June, following early results from 66 samples, which indicated the test to be in line with design requirements. Omega stands ready to mobilise both people and facilities at Alva, Scotland, to produce tests for the consortium. We are leaving our base forecast unchanged (reflects the non-COVID business only), but placing target price under review given the difficulty of forecasting potential COVID-19 related sales with any degree of accuracy.
Companies: Omega Diagnostics Group
LiDCO’s AGM statement makes for pleasing reading. Whilst the exceptional conditions in Q1 have abated somewhat, Q2 is seeing signs of a return to normality as hospitals start to prepare for the return of elective surgeries. Sales orders in May have been consistent with last year and, whilst the situation remains fluid, we take that as an encouraging sign for the rest of the year. With £4.4m of revenues booked in Q1 and recurring revenues expected to continue at the FY20 exit run rate level, we have sufficient confidence in the outlook to upgrade our revenue forecasts for the year by £0.4m and EBITDA/FCF by £0.3m. Postupgrades, the shares trade on a Yr1 EV/Sales of just 2.1x. With scope for further upgrades and the company at an inflection point in sustainable profitability, we view this as exceptionally attractive.
Companies: Lidco Group
Novacyt (NCYT.L): COVID-19 update
Futura Medical is approaching a key point as the first of the regulatory filings for its novel erectile dysfunction (ED) treatment, MED3000, is expected within the next few months. MED3000 is a fast-acting gel that has proven clinical efficacy, a fast onset of action, and an attractive commercial profile. The ED market opportunity is sizeable, especially once MED3000 becomes widely available over the counter (OTC). Optimally addressing the various elements of the demographic segments and needs of the different geographies will, in our view, require careful selection of commercial partners. We expect the partnering discussions to start in earnest once the status of the regulatory approvals is known. Our DCF-based model, using conservative assumptions, values Futura Medical at £153.8m, equivalent to 60.9p a share.
Companies: Futura Medical
Avacta is leveraging the antibody-like properties of Affimers for Therapeutic and Diagnostic applications across multi-billion dollar markets, including testing and treatment for COVID-19, building a differentiated pipeline and global partnerships. The near-term key is the roll out of its SARS COV-2 antigen tests, including potentially one of the first Point-of-Care tests to-market, offering game-changing commercial scope, sufficient to significantly accelerate the clinical development of its Therapeutic pipeline.
Companies: Avacta Group
Kromek has received a material order from DARPA to further develop a biopathogen detector totalling $5.2m. This is an incremental market opportunity for the company and the majority of the contracted value is likely to be recognised in the company’s new fiscal period to April 2021.
Companies: Kromek Group
The potential of cell therapies is starting to become clear, and MaxCyte’s technology lies at the heart of many of these next-generation treatments. The pivotal role its platform plays is shown by ten major partnership agreements formed with leading cell therapy players over the past 18 months. These can earn pre-commercialisation milestones in excess of $800m, transforming MaxCyte’s medium- and longer-term revenues as the underlying programmes advance through clinical development. CARMA, MaxCyte’s proprietary cell therapy platform, is nearing a key inflection point, with Phase I data from its lead asset due in 2020. Management is targeting CARMA to be self-financing by 2021. We raise our valuation to £260m (340p/share), from £195m and 341p, with the core business alone valued at £158m (206p/share).
Many of the world’s best and most important products (eg Space exploration, nuclear medicine/power & the internet) were originally invented by the military. It’s happened again – but this time to combat airborne pathogens like Ebola, SARS/MERS and all manner of other biological nasties doing the rounds. You see on 10th December 2018, Kromek was awarded a $2.0m contract by DARPA (research arm of US Dept. of Defense) to develop a vehicle-mounted bio-threat detector. The idea being that this should be able to rapidly identify (within 1 hour) any dangerous germ that might have been released into the environment, say by terrorist groups, organised criminals &/or rogue states.
This morning’s announcement reports that FY2020 revenues are expected to be in line with consensus at £1.1m (Zeus Capital estimate of £1m) and cash at £4.2m (vs our £4.9m estimate) the difference reflects one-off costs associated with the Protagen, Biodesix and IPF transactions announced at H1 2020, with FY21-24 unchanged. The Company is mid-way through its 3-year strategy which included an initial period of fundamental restructuring and realignment covering Operational, Technical and Research, and Commercial targets and presents a confident message of building on this strong foundation to fully leverage the value of both the Oncimmune Germany proteomics platform and the EarlyCDT product pipeline.
The specialist cancer drug discovery and development business has today announced a deal which is set to crystallise value and near term cash generation from what was viewed by many to be a non-core asset for Sareum. Sareum has entered into an agreement with a Shanghai main market-listed Chinese specialty pharmaceutical company; the Licensee will make an initial upfront payment of £50,000 to Sareum, with a further Development Payment of c. £0.9m due on the earlier of achieving certain milestones on the oral bioavailability of the Compounds or nine months from the date of the agreement.
Following on from the Primestore MTM orders announced in April, EKF has received further orders worth $9.4m to be fulfilled between now and the end of July. This results in further upgrades to our already upgraded estimates, by 34% at the PBT/EPS level in FY20, with scope for further upgrades as and when additional orders are received. The Primestore device is proving its worth during the current Covid-19 pandemic. It deactivates viruses, bacteria, fungi and mycobacterium tuberculosis allowing safe sample handling and transport, greatly reducing risk of infection and enables samples to be transported at ambient temperatures, simplifying the significant logistical burden involved in transporting millions of samples. It is also worth reiterating that the sample collection device is agnostic as to which test is carried out on the patient sample, making this something of a picks and shovels play on the current environment. In addition to these US orders, EKF has now commissioned its facility in Wales and shipped its first product into the UK market this week. It has also begun the process to start manufacturing in Germany and will bring additional capacity on stream in the US in the near future. All of this is yet to be factored into estimates and represents additional potential sources of upgrades in due course. We continue to believe EKF is exceptionally well positioned in the current environment and is forming a crucial part of the supply chain required to significantly increase diagnostic testing capacity globally. EKF remains one of our Best Ideas for 2020, supported by a positive short and medium term outlook, strong fundamentals and a track record of meeting and beating expectations.
Companies: EKF Diagnostics Holding
Synairgen (SNG.L): Preliminary 2019 results | Yourgene Health (YGEN.L): COVID-19 testing service launch and business update
Companies: Synairgen Yourgene Health
Surgical Innovations has provided some useful context to the current trading environment. Whilst revenues are significantly down in Q2 so far, they are perhaps not down to the levels initially expected and there are some encouraging if tentative signs of life as hospitals prepare to recommence elective surgeries. The group’s cash position has increased to £1.65m (from £1.28m at the Y/E) and, with an undrawn £0.5m RCF and a new £1.5m CBILS facility, the group has £3.65m of available liquidity. This should be sufficient to cover its operational requirements for several months and to fund working capital as and when activity begins to pick up. Prior to the Covid-19 shutdown, momentum had been building in terms of market share gains, with new account wins in the UK and new distributor markets opening up globally. The company’s resposable model is ideally suited to the increased focus on sustainability, particularly reducing the use of single use plastics. With a number of new products expected to launch progressively over the next few years, we believe the company has bright prospects, once the short term challenge around Covid-19 has been navigated.
Companies: Surgical Innovations Group
LiDCO provided a trading update, in which revenues in May are said to have returned to normal levels after an exceptional Q1 FY 2021 (£4.4m, some 26% higher than H1 FY 2020). With indications that elective surgeries, which fell during the peak of the COVID pandemic in its key territories, are beginning to rise again from recent lows, the outlook is for sustained growth during the rest of FY 2021. We have adjusted our FY 2021 forecasts to reflect the exceptional Q1 performance (primarily capital sales to NHS), but with scope to raise forecasts further as evidence of rising elective surgery rates occurs, coupled with the prospect that the recent capital sales should drive incremental per-use disposables. With cash balance of £3.2m at 28 May (£1.4m at FY 2020 year-end), the company is well positioned to explore additional sales & marketing opportunities in its key markets as customer hospitals exit lockdown and sales reps are able to access hospitals for evaluations. We upgrade target price to 12p.