Katie Hudson, Portfolio Manager of the Yarra Australian Smaller Companies Equity Strategy, looks at the impact of the COVID-19 on portfolio company Nanosonics.
Nanosonics is the market leader in infection prevention for medical devices such as ultrasounds. With less than 20% global market share, there is a long runway of growth available from its existing markets and through expansion into new countries including Japan and China.
The company’s revenue model is compelling. While large inflows from the sale of its devices to hospitals are attractive, from our perspective the real value driver is the recurring consumables revenues which are linked to the daily use of their devices.
Nanosonics has a highly scalable manufacturing process, requires little capital for growth, generates very strong free cash flow, and is investing in R&D for growth. With a net cash position, its balance sheet is in great shape at a time when many companies face a funding squeeze.
There has probably never been a better time to be a global leader in infection prevention.
Events of the last few months are certain to leave the world’s healthcare professionals even more focused on the importance of best practice in infection control. Medical authorities around the world are driving the adoption of new technologies, and rising paranoia post COVID-19 is set to further accelerate this trend. As the market leader for medical device disinfection, Nanosonics is a clear beneficiary from the acceleration of this structural trend.
Nanosonics has a unique, automated device, which is setting a new standard of care in ultrasound disinfection practices. While the trend to improve disinfection practices in hospital settings was well underway before COVID-19, the issuance of new guidelines in many countries is now mandating the use of higher level disinfection. Nanosonics, as the market leader, is benefiting from this steepening adoption curve.
Read more…. (available free on livewiremarkets.com)