Consort Medical — Update 4 January 2017

Consort Medical — Update 4 January 2017

Consort Medical

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Consort Medical

Nicovations reVokes Bespak supply agreement

Termination of Voke agreements

Healthcare equipment
& services

4 January 2017

Price

1019.00p

Market cap

£501m

Net debt (£m) at October 2016

106.8

Shares in issue

49.2m

Free float

91%

Code

CSRT

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(1.1)

(7.5)

(11.8)

Rel (local)

(6.8)

(9.6)

(21.9)

52-week high/low

1169.00p

941.00p

Business description

Consort Medical is an international medical devices business with more than 2,000 staff. It consists of Bespak (inhalation, injection and other drug delivery technologies) and Aesica (contract development and manufacturing, CDMO).

Next events

DEV610: GDUFA date

28 March 2017

New CFO joins

1 May 2017

FY17 results

June 2017

Analysts

Lala Gregorek

+44 (0)20 3681 2527

Daniel Wilkinson

+44 (0)20 3077 5734

Consort Medical is a research client of Edison Investment Research Limited

Consort Medical has announced that all supply agreements for Voke, an MHRA approved nicotine inhaler, have been terminated with immediate effect by Bespak’s partner, Nicovations. Termination was a contractual right in the event that Voke was not commercially launched before end-2016. Nevertheless, ‘constructive’ talks about Voke’s future continue between Nicovations (holder of distribution rights), Kind Consumer (developer of the product and underlying technology) and Bespak (formerly responsible for build, manufacturing and supply of filled devices and valve technology). Given cessation of the supply contract and uncertainty over Voke’s path to market, we remove it from our pipeline rNPV; this lowers our valuation range for Consort to 1,238-1,300p/share.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

04/15

184.8

22.7

47.8

18.1

21.3

1.8

04/16

276.9

32.3

57.6

19.3

17.7

1.9

04/17e

290.2

34.8

58.0

19.3

17.6

1.9

04/18e

305.9

37.2

62.1

21.0

16.4

2.1

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Voke: Failure to launch (by 31 December 2016)

Bespak and Nicovations entered into the supply agreements for Voke in 2011, which was subsequently approved by the MHRA in 2014 as a nicotine inhaler for harm reduction in smoking. BAT/Nicovations has made no formal announcement for the reason(s) behind the delayed launch of Voke.

Bespak: Plenty more projects in the pipeline

Consort has stated its belief that termination of the supply agreements does not “materially impact their underlying trading expectations” for FY17 (ending 30 April 2017). Bespak’s development pipeline is diverse and expanding. Voke was only one of 16 disclosed projects (see our last note), each representing minimum £3m peak revenue potential with the most valuable potentially generating up to £25m in annual revenue, based on Consort’s assessment. Hence we leave our FY18 forecasts unchanged with other products likely to offset the minimal impact from the Voke revenues. In the near term, the Syrina/VapourSoft master agreement and INJ570 (UCB Cimzia autoinjector) approval should add impetus to the injectables franchise. While launch of VAL100 (AstraZeneca) and potential DEV610 (Mylan) approval could generate meaningful revenues and diversify customer dependency.

Valuation: Range of 1,238-1,300p per share

Removing Voke’s contribution (121p/share) lowers our Consort Medical valuation range (based on a combination of peer comparables and a pipeline rNPV). On a calendarised 12.0x FY17e EV/EBITDA, our valuation is 1,105p/share; adding 133- 199p (formerly 254-316p) for the product pipeline generates a new 1,238-1,300p/share valuation. Our DCF valuation of 1,260p/share is unchanged.

Exhibit 1: Financial summary

£000s

2014

2015

2016

2017e

2018e

Year ending 30 April

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

100,010

184,825

276,910

290,170

305,903

EBITDA

 

24,434

33,188

47,614

51,323

55,231

Operating profit (before special items)

 

18,793

25,055

36,975

38,523

40,931

Intangible amortisation

(983)

(778)

(333)

(800)

(800)

Exceptionals/Special Items

(1,387)

(17,179)

(21,018)

(13,400)

(13,400)

Share-based payment

(1,821)

(1,557)

(1,792)

(1,828)

(1,864)

Operating profit

17,406

7,876

15,957

25,123

27,531

Net interest

(1,266)

(2,364)

(4,716)

(3,750)

(3,700)

Profit before tax (norm)

 

17,527

22,691

32,259

34,773

37,231

Profit before tax (as reported)

 

16,544

21,913

31,926

33,973

36,431

Tax

(3,611)

(3,269)

(4,181)

(6,259)

(6,702)

Profit after tax (norm)

13,916

19,422

28,078

28,514

30,530

Profit after tax (as reported)

12,968

4,948

15,968

17,447

16,534

Average number of shares outstanding (m)

32.9

40.7

48.8

49.2

49.2

EPS - normalised (p)

 

42.3

47.8

57.6

58.0

62.1

EPS - as reported (p)

 

39.4

12.2

32.7

35.5

33.6

Dividend per share (p)

18.1

18.1

19.3

19.3

21.0

EBITDA margin (%)

24.4%

18.0%

17.2%

17.7%

18.1%

Operating margin (before GW and except) (%)

18.8%

13.6%

13.4%

13.3%

13.4%

BALANCE SHEET

Fixed assets

 

79,699

329,687

334,861

345,061

357,761

Intangible assets

20,835

194,350

189,938

189,138

188,338

Tangible assets

49,955

128,012

136,673

147,673

161,173

Investment in associates

4,068

6,266

8,250

8,250

8,250

Trade investment & others

4,841

1,059

0

0

0

Associated with assets held for sale

0

0

0

0

0

Current assets

 

64,028

139,075

110,899

110,017

114,093

Stocks

10,203

31,344

30,725

36,271

38,238

Debtors

27,975

60,133

54,632

69,641

73,417

Cash

25,843

45,201

16,258

4,105

2,439

Other

7

2,397

9,284

0

0

Current liabilities

 

(17,868)

(222,953)

(178,780)

(183,132)

(184,054)

Creditors

(15,479)

(74,285)

(61,705)

(69,266)

(70,188)

Other creditors

(1,842)

0

0

0

0

Short-term borrowings

0

(144,414)

(113,209)

(110,000)

(110,000)

Provisions and other current liabilities

(547)

(4,254)

(3,866)

(3,866)

(3,866)

Associated with assets held for sale

0

0

0

0

0

Long-term liabilities

 

(7,335)

(45,316)

(57,829)

(43,522)

(43,415)

Long-term borrowings

0

0

0

0

0

Deferred taxation

(3,429)

(22,401)

(18,571)

(4,497)

(4,496)

Other long-term liabilities

(3,906)

(22,915)

(39,258)

(39,025)

(38,919)

Net assets

 

118,524

200,493

209,151

228,425

244,385

CASH FLOW

Operating cash flow

 

17,978

22,040

46,752

37,528

49,611

Net interest

(416)

(1,304)

(2,802)

(3,800)

(3,700)

Tax

(3,564)

(4,503)

(6,548)

(6,259)

(6,702)

Capex

(16,134)

(20,500)

(21,126)

(23,000)

(27,000)

Purchase of intangibles

(158)

(178)

(357)

0

0

Acquisitions/disposals

(387)

(202,812)

1,543

0

(1,500)

Financing

(2,598)

91,918

(1,868)

(2,401)

0

Dividends

(5,780)

(7,011)

(8,999)

(9,512)

(10,376)

Other

(64)

(2,909)

(1,265)

(1,500)

(2,000)

Net cash flow

(11,123)

(125,259)

5,330

(8,944)

(1,666)

Opening net debt/(cash)

 

(36,966)

(25,843)

99,213

96,951

105,895

HP finance leases initiated

0

0

0

0

0

Other

0

203

(3,068)

0

(0)

Closing net debt/(cash)

 

(25,843)

99,213

96,951

105,895

107,561

Source: Edison Investment Research, Consort Medical accounts

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt and Sydney. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Consort Medical and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt and Sydney. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Consort Medical and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Research: Financials

Numis Corporation — Update 4 January 2017

Numis Corporation

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