Trading in-line with expectations
​Tristel develops proprietary infection, hygiene and contamination control products used by: Human Healthcare (branded Tristel, 85% of sales); Contamination Control (Crystel, 9%), and Animal Care (Anistel. 6%) organisations. Its core chlorine dioxide chemistry is protected by 156 patents and deployed in c.400 UK hospitals.
These days shareholder value is being built and protected by intellectual property, brands, networking benefits and such like. The big question for investors is naturally: 'what price to pay' for these type of high quality business? Tristel is a case in point. At 177p yesterday, the stock traded on adjusted FY17 EV/EBIT and PER multiples of 19.6x and 26.1x respectively, or circa 20-30% above the broader healthcare sector.
Traditionally this would look mildly expensive, yet to us it seems that a large part of the premium is down to the firm’s strong patent protection (or ‘economic moat’), low profit volatility (95% of sales are derived from every-day consumables), forex tailwinds, absorption of one-off regulatory costs and superior LFL revenue growth.
Importantly too (and not presently included in our forecasts), is the ‘optionality’ that its proprietary chlorine dioxide chemistry either attracts predatory interest and/or is granted approval in North America (by US FDA/EPA and Canada’s HPB), hopefully sometime over the next 12-18 months.
The Board are targeting top line expansion of 10% to 15% annually for the next 3 years, in turn delivering pre-tax profit margins of 17.5%+, along with a progressive dividend (yield 1.9%). In light of the firm’s attractive risk-reward profile, we have lifted our own DCF calculation from 140p to 155p/share, based on a blend of FY19 exit multiples, discounted back at 12% and adjusted for cash.
Tristel is a manufacturer of infection prevention and contamination control products. Its key technology is a proprietary chlorine dioxide formulation. Co. has three segments: human healthcare, which includes the manufacture, development and sale of infection control and hygine products including products that incorporate Co.'s chlorine dioxide chemistry, and are used primarily for infection controls in hospitals; animal healthcare, which involves the manufacture and sale of disinfection and cleaning products into veterinary and animal welfare sectors; and contamination control, which addresses the pharmaceutical and personal care manufacturing industries.
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