Shares in woundcare specialist ConvaTec (CTEC) have plummeted 27.4% to 162.6p after cutting expectations for organic growth and earnings margins.

A change in inventory policy by its largest customer in the Infusion Devices division is anticipated to hit fourth quarter sales by between $18m and $23m, and is expected to impact its Advanced Wound Care division.

Sales in Infusion Devices have declined 3.7% year-on-year in the third quarter period.

Overall annual organic sales growth for the group is now expected to hit 1%, down from previous guidance of 2.5% to 3%.

In a further bout of bad news, this is expected to impact the adjusted earnings before interest and tax (EBIT) margin, which has been revised from 24% to 25% to a lower range of 23% to 24%.

CEO EXIT ON YET ANOTHER PROFIT WARNING

Chief executive officer Paul Moraviec is stepping down and is set to be temporarily replaced by non-executive director Rick Anderson.

Overall third quarter sales have increased 0.4% compared to the prior year.

In Advanced Wound Care, sales have grown 0.8% and marks a ‘disappointing result’ according to ConvaTec as the skin care business continued to drag on growth.

New products helped sales in the Ostomy Care division rise 1.5% year-on-year.

Unfortunately, the impact of supply constraints and associated patient loss is expected to be towards the upper range of previous guidance of between 50 to 100 basis points of sales growth in 2018.

The latest revised guidance come on the back of several setbacks over the last year as falling profits, previous annual sales growth cuts and the departure of chief financial officer Nigel Clerkin dragged on market sentiment.

WHAT DO THE ANALYSTS THINK?

JP Morgan Cazenove analyst David Adlington is surprised by yet another profit warning following ‘positive commentary’ over the summer from management.

He believes the new guidance implies a decline by 5% to 10% in earnings per share, but argues the valuation is still ‘attractive’ with ‘limited further downside’.

Goldman Sachs analyst Veronika Dubajova is bearish, putting her rating under review as an upbeat update was expected alongside margin improvement and accelerated growth.


Issue Date: 15 Oct 2018