The City broker noted that 2017 – ConvaTec’s first full year since its IPO in late 2016 – had proved to be a “disappointment”, with a slide in margins expected to lead to underlying earnings dipping to US$451mln (2016: US$472.2mln) when the FTSE 250 group reports its full-year results next week.
But analyst Paul Cuddon still feels the company is one of just a handful of players in a “demographically attractive market”.
“In a more aggressive competitive environment we still see risks to ostomy, especially in the US and more broadly to Woundcare given the weakening quarterly trends,” said Cuddon in a research note.
“That said, we are open-minded heading into a new financial year, and over the mid/longer [term] believe a focus on finding further operational efficiencies is key to delivering sustainable growth after several years of flat to declining EBITDA.
“With the shares trading on 13x FY18 EV/EBITDA think the risk/reward is now more fairly balanced and so upgrade to ‘hold’ with our 180p target price maintained.”
The analyst added that he wants to see more innovation or acquisition in the woundcare business and greater efficiency in the ostomy and critical care divisions.
For 2018, Numis is forecasting underlying earnings of US$452.6mln on increased sales of US$1.85bn.
ConvaTec shares gained 3.3% to 197.4p on Wednesday.