Nanosonics: Launch for infection prevention digital platform

About the author:

Scott Power
Author name:
By Scott Power
Job title:
Senior Analyst
Date posted:
01 July 2021, 4:00 PM
Sectors Covered:
Healthcare, Life Sciences

  • Nanosonics (ASX:NAN) has launched a new digital platform, AuditPro™ offering digital traceability, reporting and compliance providing a new revenue stream which we think has good potential.
  • NAN’s investment in R&D is delivering. Although we have not included in our forecasts any contribution from the AuditPro™, we have already included in our FY23 forecasts, a contribution for a second instrument disinfection product.
  • We have adjusted down our forecasts mainly in FY21 to reflect an exchange rate adjustment to consumables. Our valuation and target price have been revised down slightly to (login to view).
  • We maintain a positive stance on NAN and an Add recommendation.

Event

In accordance with Nanosonics' (ASX:NAN) R&D investment plans the company has launched a new digital platform offering digital traceability, reporting and compliance. It is to be known as Nanosonics AuditPro™ and the roll out will commence in July in the US.

The platform has potential to be used across a range of medical instruments, the first being the Trophon2. The new revenue stream will include subscription-based software capabilities.

Analysis

NAN continues to invest in R&D highlighting five core areas: 1) compliance and traceability; 2) environmental decontamination; 3) storage solutions; 4) instrument cleaning; and 5) instrument disinfection. The launch of the Audit Pro™ is a clear example of the research delivering.

At this stage we have not attempted to model any contribution from this new platform, preferring to watch the early take-up of the service. Management suggests the broad target market is 150,000 ultrasound consoles with a potential A$1,000 per year subscription.

Forecast and valuation update

We have revised our revenue forecasts down by 8% to A$102.6m in FY21 which reflects a revision to the exchange rate used to calculate consumables (to A$0.72 was A$0.78) and a lower contribution from the Middle East region.

The FX loss of A$1.2m had not correctly linked through our model with the result being NPAT reducing to A$5.0m (was A$10.2m) for FY21. In subsequent years, the lower exchange rate on consumables has resulted in NPAT reducing by 14%/8% for FY22/23 respectively. Our FY23 forecasts do contain a contribution from the second product which is yet to be launched.

Given the changes to forecasts our DCF valuation has reduced to (login to view). We have set the target price at the same level.

Investment view

We maintain our positive stance on NAN, believing the disinfection thematic will continue to gain greater acceptance, across the world’s hospital systems.

Add recommendation maintained.

Price catalysts

NAN will release its FY21 result on 24th August. Consensus sits at NPAT of A$6.7m (Bloomberg). We expect commentary around how the hospital system is opening up, particularly in the US, as well as updates on further R&D initiatives.

Risks

The key downside risk is any delay in the commercial launch of new products.

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Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

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