ConvaTec (CTEC) beats full year sales expectations, helping to overshadow ongoing supply issues.
Shares in the woundcare firm rose 9.8% to 217.1p after delivering organic sales growth of 2.3% to $1.76bn in the year to 31 December 2017.
AJ Bell investment director Russ Mould attributes the rise in the share price to beating sales expectations, but argues the firm is still nursing a ‘slight cold.’
A profit warning and supply issues toppled ConvaTec’s shares in 2017 on concerns over how long the problems would affect sales in Europe, the Middle East and Africa (EMEA) region.
Back in October, the woundcare specialist downgraded its sales guidance from 4% to between 1% and 2% following transfer issues with manufacturing lines from Greensboro to Haina.
Further disruption was also caused by hurricane activity in the Caribbean.
SUPPLY ISSUES RESOLVED BUT IMPACT REMAINS
These issues have now largely been resolved in advanced wound and ostomy care, but partially impacted adjusted operating profit, down 3.3% year-on-year at $456.8m. Lower sales from new products and further investment for growth also constrained profit.
Looking ahead, the impact from supply issues will be felt in the first half of 2018 according to ConvaTec as it scrabbles to fulfil back orders and recover from lost orders.
It forecasts further improvement in organic sales growth, estimating a range of 2.5% to 3% by the end of 2018.
Numis analyst Paul Cuddon says the new forecast is ambitious, flagging various supply issues and pricing and competitive pressures.
Bernstein analyst Lisa Clive argues the strong performance in the fourth quarter suggests supply disruption ‘was not as bad as feared’.
Despite this, Clive says ConvaTec chief executive Paul Moraviec’s expectation that market revenue growth will only be met in the medium term is disappointing.
For his part Moraviec remains upbeat, highlighting further structural margin expansion opportunities for ConvaTec in the future.