- Given the market volatility and the resultant price fall (down 20% from peak) we have moved our recommendation to Add (from Hold).
- We expect new product launches over the next 18 months will drive substantial profit growth.
- We have made no changes to forecasts and our target price remains unchanged (Morgans clients can log in to view).
- With more than 15% upside to our target price we move to Add (from Hold).
Volatility creates opportunity
With recent market volatility, the NAN share price has fallen over 20%. In our view this creates a buying opportunity. Profit growth in the coming years will be driven by the release of one or more new products for infection prevention by the end of FY20. This is a key milestone we expect NAN will deliver on.
To fund this development management has guided to A$13.0m in R&D costs in FY19 (up from A$9.9m in FY18) and operating costs to total A$52.0m. NAN expects the North American installed base to grow at a similar level to FY18 (~3,220 units), assisted by the distributor inventory rebuild. We note the revised GE reseller agreement taking effect 1 July 2019 will result in an increase in consumable sales and margins.
No changes to forecasts
We have made no changes to forecasts. NAN posted a modest profit in FY18 of NPAT of A$5.7m which is expected to increase by 55% to A$8.8m in FY19 (Consensus A$8.3m). Subsequent years with the benefit of new product launches should see substantial EPS growth >100% for FY20/21.
Investment view – upgrade to Add
Given we have made no changes to forecasts our DCF derived valuation remains unchanged (Morgans clients can log in to view). We have set our price target at the same level. The downside risk is pricing pressure as hospital budgets tighten. NAN's share price has fallen over 20% recently and now provides more than 15% upside to our target and we move our recommendation to Add from Hold.
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