The medical devices group Surgical Innovations (2p) announced its interim results earlier this week and these came in much as expected given the challenging trading conditions facing the company. The share price initially fell sharply on the results’ announcement, with a couple of trades at 1.35p being reported, but as investors realised that the outlook was perhaps a little more promising the share price recovered sharply. However, it still stands at less than half the level of its high for the year and so patient investors may wish to take a look at the stock.
Surgical Innovations is a designer, manufacturer and distributor of innovative, high quality medical products, which are primarily used in minimally invasive (or keyhole) surgery. The products are sold directly in the UK home market and exported widely through a global network of distribution partners. The group’s distribution subsidiary also has exclusive UK rights to distribute a range of specialist products in areas including laparoscopy, hernia repair and breast reconstruction. In addition, the group also develops products for carefully selected OEM partners.
In the six months to 30 June, revenue at the group fell to £5.10m (2018: £5.28m) and this resulted in an adjusted pre-tax loss of £49k (2108: adjusted pre-tax profit of £154k). Adjusted earnings per share were 0.02p (2018: 0.05p) helped by a tax credit for the period. Net cash at the end of the period was £0.34m (2018: £0.38m). These results reflect the difficult trading environment which has been adversely affected by constraints on UK health spending and uncertainty relating to Brexit. However, despite this, the group has continued to invest in people and product development, strengthening the senior management team with the appointment of a new chief executive in March as well as other senior appointments.
Although trading in the short-term seems unlikely to improve, the longer-term picture is more encouraging. The factors affecting demand are temporary and once the current political impasse has been resolved there should be significant pent up demand for the group’s products. Although this may take some time to be reflected in a higher share price, patient investors who buy in now are likely to be richly rewarded in a year or two. The shares are a BUY.
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