Tristel develops proprietary infection, hygiene and contamination control products used by: 1) Human Healthcare (89% of sales); 2) Contamination Control (branded Crystel, 6%), and 3) Animal care (Anistel. 5%) organisations. Its core chlorine dioxide (ClO2) chemistry is protected by 156 patents and deployed in c.400 UK hospitals.
In this morning’s pre-close trading statement, the company said it had beaten our FY17 estimates – posting adjusted PBT (pre share-based payments) of at least £4m (vs ED £3.8m) on turnover up +16.9% to >£20m (ED £19.6m) - estimated 10% LFL/constant currency. Overseas healthcare was the standout performer, up around +47% to £8.95m (est +28% LFL) - thanks to buoyant conditions in China/Hong Kong, Germany and Australia - and UK Health rose a creditable 4.4% LFL to £8.9m.
Shifting to M&A, in Aug’16 Tristel purchased its Australian distributor for £1.1m in cash, which has subsequently been integrated within the group, and provides a launch-pad from which to extend its proprietary Clo2 technology across the whole of Australasian region. Better still, just prior the period close the Board invested $750k for a 3.27% stake in MobileODT (MODT), an Israeli firm (valued at $23m) combining smartphone expertise with hand-held, point-of-care diagnostics.
We have always taken a prudent stance when modelling Tristel’s application to the EPA/FDA to launch chlorine dioxide (ClO2) based infection, hygiene and contamination control products in the US. but as each major milestone is hit, then the overall project risk declines. Therefore, we’ve re-cut and extended our forecasts to FY25, alongside running a 4 key sensitivities test – together reconfirming our positive view on the stock.
On today's update we have moved up our FY18 PBT forecast to £4.25m (from £3.83m) on revenues of £22.2m (vs £21.8m) - climbing to £31.2m and £7.3m respectively (margin 23.3%) by FY21. Moreover, the Board are on track to achieve its medium-term goal of lifting turnover to between £22.8m-£26.0m by FY19, equivalent to a CAGR of 10%-15% pa on FY16 (£17.1m).
Despite climbing 10-fold from a low of 21p four years ago, an updated analysis suggests the business is worth 211p/share (from 155p), even ignoring any upside from North America. Indeed, should the EPA/FDA grant approval over the next couple of years, then the States alone could contribute >25% of group revenues, say by FY25. In turn, possibly adding another 100p+/share to the current valuation.