The cream ultimately rises to the top, or so that is the case with Tristel. You see, despite fears over the global economy, NHS budgetary constraints and BREXIT, the company this morning said that it had enjoyed a “very strong” 2 nd half – reporting H2 revenues of >£9m, up 13.5% YoY. Better still, FY16 adjusted PBTA (pre SBP and unrealised forex gains) and net cash came in above expectations too, at £3.1m (+20% vs £2.6m LY) and £5.7m (vs ED at £4.5m) respectively - driven by an outstanding performance from overseas (42% of H2 sales vs 36% in H1), augmented by an encouraging rebound in UK Healthcare following a slight decline in H1.
As a result, a 3p/share special dividend is to be paid from surplus funds on 5 th August (ex div date 28th July) – which, when added to the normal annual payment (estimated at 3p based on 2x cover), represents a generous 6.0p return for the year, equivalent to a 5.2% yield. Here, we suspect, subject of course to future internal and M&A requirements, these type of one-off distribution may become a more common feature, since the Board’s “intention is to retain cash reserves in excess of £3.0m”, which could create additional flexibility vs our projections.
Elsewhere, the firm has bought the assets and business (including people, customers, stock, etc) of Ashmed Pty Ltd, its Australian distributor, for Au$1.35m plus certain compensation payments for the re-purchase of inventory. The existing management team is staying, and we think this low-risk acquisition will enable Tristel to expand locally much more rapidly than otherwise would be possible – for instance by taking direct control of the timing of product launches.
Ashmed was modestly profitable in FY16 on turnover of Au$3m, and is expanding at a circa 20% pa clip. For reporting purposes, group consolidated revenues will only increase by the distributor margin (ie after standard inter-company eliminations) – albeit EBITA is likely to rise £100k in FY17, and by possibly much more in later periods as synergies are crystalised.
Moving to the US, the process of seeking product authorisation from the FDA and EPA carries on at pace, and is on track to (hopefully) obtain approval in 12 months’ time. A key milestone will be the submission of required test results and detailed documentation, which is provisionally slated for December 2016. The Board has already “had a successful meeting with the FDA” in Washington on 28 April 2016.
With regards to the numbers, we envisage this positive momentum will continue, and have duly upgraded our FY17 turnover and PBTA forecasts by +9% and +7%, to £19.5m and £3.54m respectively. Likewise our price target climbs 8% to 135p/share. Progress within the Contamination Control and Animalcare divisions is thought to be steady, meaning the vast majority of the predicted growth is organic, and coming from the higher margin healthcare and chlorine dioxide (Clo2) based products.