Turn of an era?

This was the earliest opportunity to exorcise Mr Powell’s ghost. Silverback left the stage, things remained difficult and the mid-term targets were put on the bloc. This was fairly logical and put Mrs Giza, co-CEO, CFO and CTO, in a very strong position by putting her co-created FME25 programme off the table and clearing the way for the currently on-boarding Mrs Carla Kriwet. We value this step as a first measure to rebuilding confidence.

A slightly infected start to 2022

A mix of negatives weighed on FMC’s profitability. The re-occurrence of the pandemic proved costly as the number of isolation clinics had to be re-ramped and the labour shortage resulted in higher wages. In addition, excess deaths increased despite high vaccination rates. Higher input costs were added to the mix making it a perfect storm. Consensus was slightly beaten at the top-line (+1.2%), whereas the EBIT line came in slightly above (+1.8%) street expectations.

A vaccination beneficiary

At last, the quite high (partial) vaccination rate among FMC’s vulnerable patients (>80%) and the Omicron variant’s mild effects have led to a reduction in excess mortality. The financial impact on the FME25 programme remained at unexpected low levels. Nevertheless, 2022 is earmarked as seeing some continuation of the challenges (effects from excess mortality, staff shortages). Our estimates were beaten by +4.2% (consensus: +0.6%) at the top-line and by +6.4% at the EBIT level (consensus: -1

FMC wants to break free …

… but has to wait until 22 February 2022. In other words, uncertainty remains for the next 111 days before getting more details about FRE25, the transformation programme. Despite Fresenius CEO’s more friendly words about FMC’s management, we still believe not everything has been resolved in the meantime. Q3 figures broadly meet consensus (top line: -1%; EBIT: matched; net profit: +3.0%), but the pick-up in excess mortality and the consumables raise some concern regarding profitability.

The baffling loss of profitability

The pandemic seems to have revealed all the oddities in FMC’s business model, which usually benefits from the continued inflow of new patients. Here we highlight that managerial skills could be improved here and there. And the same is true for communication and reporting. The quite strong loss in profitability could not be fully explained by the lack of government compensation for higher costs. FMC missed consensus at the EBIT level by €-11m, which does not look too meaningful to us.

Coronavirus impact will last a bit longer

FMC’s management had spread a lot of confidence that there were signs that the worst should soon be over (see Latest of 06/05/2021), when it comes to excess mortality. Mr Powell was cited by a newspaper that the negative effect from the pandemic is now expected to last until mid-2022. FMC has not given a profit warning, but we see an increasing likelihood of one. A perfect time for this would be the presentation of the efficiency programme in autumn 2021.

Additional decoupling

We see a certain decoupling, of which the one related to the COVID-19 cases of FMC patients to the global trend is very positive in our view. The reduction of transparency (Care Coordination is not reported separately), which makes it even more difficult to track reimbursement trends, seems to indicate some disconnection between investors’ and management’s ambitions. The reported figures were better than feared, but met consensus.

The pandemic as the acid test

FMC is currently undergoing an unexpected Litmus test. Management has taken the opportunity to dig deeper into its business, striving for more resilient profitability, which seems to foil our strong view on FMC’s business model. We are still struggling with management’s performance as this have been done on a regular basis. In our view, FMC’s equity story has not really changed, but we are not that excited by the current financials nor the guidance.

Sadly something went wrong...

Expressing our deepest sympathy to those who have lost friends and relations, the pandemic has appeared in its deadly form. FMC appeared to have the right concept to cover pandemic-related challenges, still providing >105,000 treatments per day in the first nine months. But what went wrong since then? Basically, nothing. Or rather, the pandemic took its toll. Having been quiet for two days, management gave a short presentation. In short, 2021 might become a ‘year of lost growth’.

What a happy day

FMC is expected to benefit from the rejection of a ballot measure in California. Additionally, CMS will increase the reimbursement for Medicare patients undergoing dialysis more stronger than expected.

Stumbling in the crisis?

Despite our strong belief in FMC’s robust business model and its ambition to help people with severe illnesses, we have the increasing impression that the company could be better run. Difficult to prove this but there seems to be a lot of talk and not much in the way of results. The disclosure is not always that good (e.g. p12 – Q3 presentation). Q3 did not meet our expectations, but beat the street.

Unexpectedly strong North America

FMC’s Q2 figures were dominated by the strong US figures, which benefited from the governmental cheque. The normal business did well and both effects combined led to a strong set of results, beating both our own and consensus expectations. One outstanding question: what will happen if the US CARES Act is not prolonged or is replaced by another subsidy as the pandemic remains at high tide in the US.

Firm as a rock?

FMC is doing quite well in the current environment. But this was due to the robust business model and not to excellent manoeuvres in a stormy sea. ON the contrary, it lowered transparency by another notch down. However, reported figures were slightly below our expectations, but beat consensus (sales: €4,422m; EBIT: €543m). The confirmation of the given guidance still excludes any COVID-19-related impact.

The magic of Q4

FMC’s year-end profitability push came in rather unexpected. The gross profit margin moved into the right direction (down), but EBIT came in clearly above our expectations. The reasons therefore were not well explained (better performance of Care Coordination) and the set of figures provided was of no help. Nevertheless, the underlying business trend is intact.

North America raises some question marks

Despite having reported mixed but good figures, North America, the largest segment (the company’s segment reporting is by regions), saw a strong top-line development (including the NxStage acquisition), but profitability suffered from various effects (e.g. lower revenue per treatment and higher costs per treatment). The other regions more than offset this. The Q3 figures were above our expectations as well consensus.

Strong growth in core underpins FY expectations

EKF has reported a strong H1, with revenues of £37.5m and double-digit growth in underlying non-Covid related business. Management reports it is trading in line with expectations for the full year and we make no change to our profit forecasts at this stage. New growth initiatives are proceeding to plan and should lead to accelerated core growth from FY23 onwards. We continue to see substantial upside on successful execution with the shares trading on an FY23 P/E of 13.1x and an EV/EBITDA of just

Kromek - FY 2022 results

Kromek reported full-year results to 30 April that were in line with the trading update of 16 May. Record visibility over our FY 2023 revenue forecast of £18m (c.53% of which is already contracted and 37% “Awarded not Contracted”, with the balance from its normal monthly run rate) is a great start for FY 2023 on which the company can build further. We are leaving forecasts unchanged for the moment, despite additional contract wins, and expect to introduce FY 2024 forecasts at the time of its int

Kromek - Fundraise – £1.7m convertible loan note

Kromek announced a £1.7m fundraise by way of the issue of convertible loan notes (8% coupon, 18-month conversion period at 15p per share), which will allow the company to minimise any potential supply-chain disruption to the delivery of contracts during the year. We make only minor changes to forecasts to reflect the additional interest (c.£0.1m) accrued, with adjusted pre-tax loss increasing to £5.0m. We leave our target valuation of £118m (27p) unchanged, with near-term catalysts (e.g. a secon

Morning Note – 3 August 2022

Hybridan Small Cap Feast 21-07-2022

Dish of the day Joiners: No joiners today. Leavers: No leavers today. What’s cooking in the IPO kitchen? Unigel Group, intends to join the Aquis Growth Market. Unigel Group is a pioneer in the field of thixotropic gels for the fibre optic cable industry. The Company is also a supplier of laminated steel tapes to the fibre optic cable industry in the US. Thixotropic gels and laminated steel tapes are essential components to the rapidly growing global fibre optic cable market. The Group export

Morning Note – 2 August 2022

Q2 21: Internal problems amplify the external headwinds

Smith & Nephew reported mostly in-line Q2 22 numbers, missing the top-line estimates (-0.6%) but beating on the trading profit (+0.5%), albeit marginally. The Q2 performance was overshadowed by a 100bp margin downgrade for FY22 (-50bps Y-o-Y vs +50bps previously), which sent the stock ~9% lower in the session following the update. The reiteration of the top-line growth outlook of 4-5% was no help either. We will cut our estimates, largely to reflect the soft margin guidance.

Strong top-line drives another decent quarter

In Q2, Astra sustained its solid top-line momentum. Like in the past few quarters, this outperformance was again driven by higher COVID-19 business sales and solid growth in Diabetes drug Farxiga. Moreover, the recovering Oncology and much-needed green shoots in Rare Diseases were the icing on the cake. Although, profitability again came under the scanner but should improve in the coming quarters/years as the company completes its ‘growth phase’. Overall, a decent set of results and our positive

LIBERUM: SourceBio International* - Update shows evolution to core

Hybridan Small Cap Feast 01-08-2022

Dish of the day Joiners: No joiners today. Leavers: No leavers today. What’s cooking in the IPO kitchen?** Inteliqo Limited, intends to join the Aquis Growth Market. Inteliqo Limited provides sales, marketing and distribution services to technology product owners under long-term distribution agreements. The Company has agreed its first such agreement in respect of the Ipedia iQ product range. The iQ product is a smart translation earphone (earbuds) system which offers integrated real time speech

Supply agreement with VGM Group

Belluscura has announced that it has entered into a Group Purchasing Organisation Product Supply Agreement with VGM Group which further expands its distribution network across the US.

Morning Note – 5 August 2022

FY22 results and a highly visible outlook

For the year to 30 April 2022 Kromek reported results in line with the Trading Update of 16 May: revenue of £12.1m, +16.5%YoY, and an EBITDA (adj.) loss of £1.2m. We estimate revenue in the Advanced Imaging division grew 28% YoY to £4.6m, whilst the CBRN segment grew 1.5x to £5.4m. Kromek reports that it expects growth to accelerate in both its core segments – security-related CBRN and advanced imaging – with the prospect of “a substantial year-on-year increase in revenue”. The CBRN segment in

Growth on an accelerating path

Smith & Nephew’s growth acceleration and margin expansion in Q2 should continue in H215, more reflecting internal changes than improvements in market fundamentals. Its c 13% premium on 2015 P/E to its global ortho peers is supported by its brisker growth and strategic value.

The Hardman & Co Monthly: August 2022

Feature article: Utility regulation – Changes afoot - Patching up a tainted model While the gas supply crisis – and its price implications – have dominated the UK price regulated sectors in recent months, other issues have arisen that have seriously tainted the price regulation system itself. Indeed, it is fair to ask whether it is ‘’fit for purpose’’. Back in 1984, price regulation, via an unsophisticated RPI-x formula, was introduced to prevent the privatised British Telecom (BT) from abusin