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I suspect the ConvaTec Group (LSE: CTEC) share price has slipped under the radar for many investors. It had for me.
Yet the company saw its shares climb 45% in the five years to June’s 52-week high of 311.2p. That was before a sharp dip to 238.8p at close on Monday (28 July) however. But we’re looking at a 1% rise at the time I write on first-half results morning (29 July).
Progress since 2016
ConvaTec’s a medical products and technologies company, specialising in long-term care for wound, ostomy, incontinence and infusion patients.
It floated on the London Stock Exchange in 2016. Since then, the share price has, well, gone almost precisely nowhere. But after a disappointing start to life as a public company, ConvaTec’s seen its shares gradually creeping up since mid-2019.
The latest update covers a bewildering array of technical products with the usual less-than-poetic medical names (I can’t delve into them in the space available here). But investors considering buying some shares really need to at least get an overall feel for what they do and how their prospects might look.
In summary, I can’t really do better than quote CEO Karim Bitar: “We saw further broad-based organic revenue growth across all chronic care categories, further operating margin expansion and double-digit growth in adjusted EPS.“
He added: “We are well-positioned to deliver our medium-term targets, including double-digit compound annual growth in EPS and free cash flow to equity.”
That will apparently be driven by the firm’s “leading positions in structurally growing markets” and its “strongest-ever innovation pipeline“.
Turnaround time?
The first half saw adjusted operating profit rise 13% to $252m, on a 21.3% adjusted margin. Adjusted earnings per share (EPS) put on 19% to reach 8 cents.
There’s a chunk of net debt on the books, up to $1,165m from $1,058m at 31 December. That does concern me. It puts the firm’s net debt to adjusted EBITDA ratio at 1.9x. Though at least that’s down from 2.3x a year prior.
Should a company be paying $101m in dividends, as this one did in the half, to see net debt rise by a bit more than that? I’m probably worrying unduly, but I’m like that. My long-term aversion to company debt was strengthened by the 2020 Covid crash. It was painful to see some with big debts struggle badly.
Still, forecasts suggest net debt should be down to around $500m by 2027. And that would ease my concerns considerably. City analysts also see EPS almost doubling between 2024 and 2027. Today’s forward price-to-earnings (P/E) of over 27 perhaps looks a bit steep. But by 2027 it could be down around 17.
The biggest risk for me is the unknowns and uncertainties behind all those technical products. And this is a very competitive market. But those potential growth prospects mean I can’t ignore the stock at the current price. I’m not buying yet, but I’ll consider it when I’ve educated myself a bit more.
