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#COVID-19 update
Added 11 hours ago

Nanosonice said it has seen a "Significant" increase in Q3 sales and that sales of cosumables have been in line with pre-covid-19 expectations.

That being said, access to hospitals is obviously restricted at this time and that is likely to impact sales for the final quarter. However it is hard to quatify, and the company is taking measures to reduce expenditures.

Nanosonics reiterated its (incredibly) strong balance sheet, which has ~$82m in debt, and said that a weaker AUD is helping.

ASX announcement is here 

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#FY19 Results
Added 7 months ago

Very strong numbers.

Total revenue climbed a full 39% higher to $84.3 million as the installed base of the company’s sole product grew across all regions. Average top-line growth over the past three years (which normalises the impact of deferred sales from the release of the Trophon 2 unit) works out to approximately 25% per annum.

The number of trophon units in operation increased by 18% globally, with North America again the biggest contributor with the addition of almost 3,000 new units -- in line with guidance provided at the first half.

Importantly, consumables and services revenue -- which is both higher margin and recurring in nature, and now accounts for over 60% of total revenue -- saw a hefty 47% improvement from the previous corresponding period.

Operating expenses grew by around 15% to just shy of $50 million, as telegraphed at the half year, due to a 27% lift in headcount and an increasing R&D spend. Nanosonics told investors that costs would increase significantly in the current year, saying it forecast $67 million in operating expenses (a 36% increase) for FY2020 as the business readied itself for its “strategic growth agenda”.

At the bottom line, excluding tax, Nanosonics registered $16.8 million in profit, or almost 20% of total revenue. That’s a 200% increase on FY18’s result. With prior year’s losses helping to reduce the tax burden, net profit came in at $13.6 million, or 4.53 cents per share.

It is however important to note the (significant) exchange rate benefit in these results. Revenue growth reduces from 39% to 29% on a constant currency basis. FX wont always be so favourable...

Looking ahead, Nanosonics told the market to expect continued growth, with FY20 adoption in the major North American market to be similar to that just reported. Meanwhile, new European regions and improved fundamentals would drive growth in that region.

The new GE Healthcare distribution agreement would see an improved consumables margin, the benefits of which would be most noticeable in the second half. On top of this, and pending regulatory approval, new product releases were also expected in the later half of the current year.

With over 30% of the current installed base due for renewal in the next two years, the replacement cycle should also help bolster capital sales.  

Nanosonics estimates it has just 17% of the total addressable global market, so there’s clearly a long runway for growth. And as a profitable business with over $72 million in cash on hand, it has plenty of dry powder to prosecutive its strategy.

Shares (at time of writing) are now on a P/E of 134. The price to sales sits at ~21.3.

See my valuatiion for more.

FY presentation is here

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#2019 Forecast
Last edited 3 months ago

An article on Nanosonics in the AFR on June 14.

See here 

Included in teh article is guidance from Bell Potter:

"...this financial year analysts expect [revenue] to grow by a third to pierce the $80 million mark. Net profit is expected to more than double to over $10 million in 2018-19, with Bell Potter estimating a net profit after tax of $13.2 million."

Bell Potters price target is $3.52

At the last traded price ($4.93) that puts NAN on a P/S of 18.5, and a PE of 112

In the current market, especially for tech stocks that isn't particularly excessive. But against historic norms it most certainly is. Further, this is not a software company that has virtually zero incremental costs for each additional unit sold. This is a hardware company.

A new product (expected to be in the market this time next year) could really help boost sales, but there's a lot of unknowns here.

I'm a huge fan of Nano and have held for years. I have increased my valuation slightly, but shares stilll seem a bit high for me. Have been selling down this year, but still have a reasonable stake.

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#HY2019 Results
Last edited 7 months ago

A record first half for Nanosonics, with revenue up 36% to $40.7m.

All regions saw double digit gains in revenue with North America (by far the largest segment representing 91% of the total) saw the biggets lift of 37%.

That's a solid result, but bear in mind that the previous corresponding period (pcp) was depressed due to the immenent release of the Trophon 2 product, and resellers running down inventory and customers delaying purchase. If you compare to H1 2017, first half revenue was 12.7% higher, or 6.2% on an annualised basis. 

Consumables growth was very pleasing too, up 26% from pcp or 11% from preceeding half. This represent ~60% of total revenue and will continue to grow.

The gobal installed base grew by 9% from the proceeding half, or 20% over the past 12 months, to 19,310 units. A great result, but that is a slow down from previous years. For example, this time last year, FY installed base was 13% higher over preceeding 6 months. And FY growth to the end of FY18 was 25%. 

In FY18, Nanosonics increased North America installed base by 3,140. And they have today guided for a similar increase in FY19. That would give the total installed base of 18,760.

UK expecting a 50% growth in installed base, so that should bring it to around 1,000 units (although that is based of the total EMEA figure).

Operating expense forecast to be $50m for ther full year, whereas previously it was $53m.

Cash balance increased to $71.3m (about 6% of market cap). No debt. 

I think this was a very sound result, and the future remains bright, but hard to get my head around the valuation.

Company on a P/S of 15x (ttm), or 13.5x pro rata. The PE is ~85 if you double the first half result. I'm not one to get too caught up on value metrics for super strong, fast growing businesses, but still...

Will have a think on the valuation and update shortly

Results presentation is here

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#Bull Case
Last edited 3 months ago

Nanosonics manufactures and sells a high level disinfection unit for ultrasound probes, the Trophon EPR, which is increasingly becoming the gold standard for disinfection procedures.

Sales have tripled in recent years as increasing regulatory standards have accelerated the adoption of more rigorous disinfection models. Importantly, there remains a huge global market opportunity, with the company estimating a potential installed base of 120,000 units.

At the end of FY2018, nanosonics had an installed base of 17,740 units, predominantly in the USA (where the market opportunity is estimated to be for around 40,000 units).

The business has a ‘razor and blade’ model, providing it with very ‘sticky’, high margin, recurring revenue thanks to the sale of consumables. As the installed base grows, and as usage increases, the potential here is significant.

The business is has no net debt, plenty of cash, strong sales momentum, a good industry tailwind, market leading positioning and capable & aligned management.

Growth is expected to remain strong as the company consolidates its lead in major markets, moves into new geographies, and expands its technology to service a wider array of disinfection needs.

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#Industry/competitors
Last edited 3 months ago
A big driver of uptake are increasing regulatory pressures. From 2017 annual report:
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#Business Model/Strategy
Last edited 3 months ago

Unit Economics

As per a 2013 presentation (see link), Nanosonics sells each Trophon unit for around US$10k.

Each unit uses around US$3k worth of consumables each year

View Link

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