A set of red and yellow lights …

… after a bag full of green ones a year ago made Healhineers’ Q3 figures look a little odd. Nevertheless, they were a notch better than expected despite missing the consensus at the profitability level (sales: +0.5%; adjusted EBIT: -5.0%). In addition to Chinese lockdowns, the company sees supply chain issues as a temporary effect which is going to ease in the coming months. These effects might not be fully offset in Q4, but it is expected to report the strongest top-line.

Strong growth despite headwinds

It was a smart decision to rapidly develop a rapid antigen test for the detection of Cobid-19 back in 2020. The test having since become available in the US, sales grew significantly in line with infection rates. Test sales will decline in H2 as the planet seems to be moving from a pandemic to an endemic situation although the underlying businesses are expected to recover strongly over the forecast period. Consensus was beaten by +4.1% on the top-line and adjusted EBIT by +6.9%.

Quickstart into 2022

Healthineers reported a consensus-beating start to the FY (sales: +31%; adjusted EBIT: +22%) due to the good development across the established portfolio. Antigen tests stood out by already overrunning FY guidance in the first quarter. However, not everything was perfect. Real life data show gross margin pressure and higher operating costs. The good news was Healthineers could deliver its products to customers, which could not be said for all competitors. Q1 figures were above our estimates.

Reinvested profitability gains boost dynamics towards 2025

Healthineers held an impressive virtual investors day when it provided further insights to each division and gave first glimpses of how management thinks the new foursome should work. The most interesting point was the cross-fertilisation between the divisions, especially Imaging and Varian, but management could have been more specific in our view. However, enough light was shed to foster our view on Healthineers.

Profit sharing’s big bite

Healthineers’s Q4 figures were strong at the top line, but subdued when it came to profitability. Its business model includes a certain profit sharing with sales representatives, which strongly weighed on the group’s profitability as it sallied out of the pandemic. Management’s way of presenting the results as well as giving guidance makes it difficult for quick comparisons. Reported figures were mixed, beating consensus +2.8% at the top line, but missed it by 3.2% at the adjusted EBIT.

A nice year-end finish?

In light of the Delta and the emerging Lambda variants, the testing challenge has become wider as the questions have shifted from positive to how high. We believe the former is still valid, but the latter is also meaningful against the background of boosters. We believe Healthineers has done well, especially in Diagnostics in 2020/21, as COVID-19-related testing will not go away in the short term but its contribution will be lower in 2021/22.

Siemens HEALTHINEERS

Healthineers did better than expected by us and clearly beat consensus (top-line: +10.2%; profitability: +20.5%). The strong development was primary driven by the diagnostics boom, which made Healthineer a strong and obligatory player. Like every boom, the effect will phase out in the coming quarters. Varian, the new kid on the bloc, made the expected strong contribution, whereas the other divisions reported the usual temporary volatility.

Rocking Diagnostics

Based on the strong demand for its COVID-19 antigen test as well as for Imaging’s consumables and the closing of the Varian acquisition, management lifted its organic sales growth assumptions as well as its EPS ones. Reported Q2 figures were in line with our expectations, but consensus was beaten by +2.4% at the top line, but missed by -4.6% on the adjusted EBIT level. The company significantly increased its operating CF due to good working capital management.

Could 2021 really become a stronger year?

Healthineers lifted on the back of the strong performance in Q4 of CY 20 and its FY guidance. But one of the drivers, if not more, look slightly fragile to us: normalisation of the underlying business. The latter might be really attributable to the more machine-related divisions, but for Diagnostics we have some doubts. Released preliminary figures were stronger than expected and also beat consensus.

Some believe in 20/21

Management radiated optimism during the conference call pointing to the strong order backlog and hopes in the pickup procedures. The Q4 figures were impacted by the ongoing dearth of elective procedures burdening the Diagnostic margin and Advanced Therapies suffering from higher costs for Corindus. Nevertheless, the FCF was strongly higher. These results beat our cautious expectations and were slightly above consensus. The dividend proposal was however below our forecast.

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

Hybridan Small Cap Feast 09/08/22

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 exports

Morning Note – 3 August 2022

Update ahead of results

Ahead of its upcoming results, ECO has issued an update flagging an issue around a sales tax liability and the treatment of certain items of capitalised development, offset by a foreign exchange gain will result in it reporting FY22 Adj EBITDA of ~£6.5m vs SCMe £7.1m. It has also indicated trading in China has been difficult in Q1 FY23, particularly with the large producers, but margins have improved on mix. Trading in the Rest of the World has been strong YTD. Given the proximity to the results

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

LIBERUM: PureTech Health - Karuna hits Phase III ground running

Hybridan Small Cap Feast 16/08/22

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 exports to over 40 count

WHI First Light: Spectra Systems, ARC Minerals, KEFI Gold & Copper, Dekel Agri-vision, NetScientific & LifeSafe Holdings

Spectra, a leader in machine-readable high speed banknote authentication, brand protection technologies and gaming security software, has announced its first commercial sale of a Banknote Disinfection System (BDS) to an Asian central bank. The BDS system, utilising Spectra's patented technology, contributes to the safety of central bank staff who handle banknotes incoming from circulation, which may carry bacterial and viral pathogens. The system is a plug and play technology as it does not req

Hybridan Small Cap Feast 05/08/22

Dish of the day Joiners: Inteliqo Limited has joined the Access Segment of AQSE Growth Market. Inteliqo Limited provides sales, marketing and distribution services to technology product owners. Leavers: Menzies (John) plc and Sanne Group have left the Premium Segment of the Main Market. 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 sup

Morning Note – 5 August 2022

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

In-line H1; but sustained downturn in generics spooks investors

Hikma ended the H1 on a weak note, with decent growth in Injectables and Branded segments being largely offset by a decline in the Generics franchise. Also, the weaker H1 led to a second downward revision to the full-year 2022 outlook for Generics in the last three months. Nevertheless, these are only transient concerns and the firm’s attractiveness remains intact on the back of the robust long-term virtues of the generics market, and the group’s leading position in the target markets.

LIBERUM: ReNeuron* - Signed, sealed, delivered (I'm yours)

Hybridan Small Cap Feast 16/06/2022

*A corporate client of Hybridan LLP Dish of the day Joiners: No Joiners Today. Leavers: No Leavers Today. What’s cooking in the IPO kitchen? LifeSafe Holdings, a fire safety technology business with innovative fire safety products, intends to join AIM. LifeSafe has developed what the Directors believe to be market disrupting, eco-friendly fire safety protection products to both protect (via fire extinguishers) and detect (via carbon monoxide, smoke and heat alarms) fires. At the cent

WH Ireland: NetScientific (NSCI) - Portfolio company PDS Biotechnology provides a business update and Q2 2022 financial results

NetScientific is an active transatlantic life sciences, sustainability and technology investment and commercialisation group. Portfolio company, NASDAQ-listed PDS Biotechnology (PDSB), in which NSCI holds a 4.72% equity stake, announced on 8 August 2022, a business update along with Q2 2022 results to the end of June 2022.