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Strong sales growth helped by COVID-19

Stratec 19 October 2020 QuickView
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Stratec SE

Strong sales growth helped by COVID-19

Medtech

Deutsches Eigenkapitalforum 2020

19 October 2020

Price

€134.4

Market cap

€1,626m

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Share details

Code

SBS

Shares in issue

12.1m

Net debt at H120

€68m

Business description

Stratec SE is a one of the world’s leading providers of systems for the leading global in vitro diagnostics and life science companies. It designs and produces fully automated analyser systems, software and smart consumables. It is based in Germany with subsidiaries in the US, Switzerland, Austria, Romania, Hungary and China.

Bull

Revenue growth expected by management at 14–18% to at least €253m for FY20.

Profitable and cash generative business with 15.5-16.5% adjusted EBIT (about €40m) expected by management in 2020.

Strong technology base and system IP ownership with contracts locked in for 12–15 years giving a stable business basis.

Bear

Most profit and cash from spare part sales, giving low earnings relative to reported revenues

Product sales on long lead times - although sales of system units grew 30.1% in H1.

Low cash generation (€11.9m in H120) relative to revenue growth due to working capital needs and investment on low equity base.

Analyst

Dr John Savin MBA

+44 (0)20 3077 5700

EDISON QUICKVIEWS ARE NORMALLY ONE-OFF PUBLICATIONS WITH NO COMMITMENT TO WRITING ANY FOLLOW UP. QUICKVIEW NOTES USE CONSENSUS EARNINGS ESTIMATES.

  

Stratec SE is a highly regarded German company that designs, develops and supplies about 8,000 fully automated diagnostics systems and modules annually. Clients include major companies like Hologic, DiaSorin and Siemens Healthineers. Typical 12–15-year product life cycles give underlying stability. Stratec is benefiting from COVID-19 driven diagnostic demand. H120 sales were €119.4m, up 9.9% y-o-y, with a 15.4% adjusted EBIT margin. The company guides to FY20 revenue growth of 14–18% with a 15.5–16.5% adjusted EBIT margin.

A profitable business in three parts

Stratec reports three business divisions operating in the US$70bn global in vitro diagnostics market. Instrumentation, the largest business division, develops and manufactures big, sophisticated diagnostic instruments tailor-made for large multinational clients (which sell the tests and own the chemistry). Stratec owns the IP on its systems. It reported €84.5m (70.9%) in H120 revenues, up 3.1% vs H119. The Diatron division produces the lower throughput analysers required by clinics. It reported €28.1m (23.5%) in H120 revenues, up 33.9% vs H119. The third division, Smart Consumables, makes the plastic disposables needed to run diagnostic tests. It reported €6.7m (5.6%) in H120 revenues, up 12.9% vs H119.

Three-way business dynamic

In total, H120 revenues were €119.4m, up 9.9%, with adjusted EBIT of €18.4m, a 15.4% margin. The business operates in three stages: design and develop, system manufacture, and spare part supply. In H120, development and services revenues recognised were €11.8m, a decrease of 49.9%. These are offset by costs so have zero EBIT impact. Sales with systems rose 30.6% from €51m in H119 to €66.6m in H120. Most profits come from service parts and consumables, worth €40.7m, a 20.6% rise vs €33.7m in H119. Operating cash flow was €11.9m in H120.

Valuation: Solid growth at a high multiple

COVID-19 boosted Q220 sales as clients made SARS-CoV-2 tests available and this helped system and spare part sales. Quanterix, an innovative ‘digital’ diagnostic client, is aiming to make a big COVID-19 impact in the longer term. For FY20 overall, management guidance is for group sales to rise 14–18% from €214.2m in FY19 (adjusted for Data Solutions), with adjusted EBIT in the 15.5–16.5% range (FY19 adjusted 13.7%), or around €40m. Cash flow was €3.1m in H120 after loan movements and a €10.1m dividend payment. The EV is about €1.64bn after adding debt of €93.8m and subtracting 30 June cash of €25.8m. On consensus FY20e EBIT, the EV/EBIT is c 39x, above the EBIT growth rate. The 2019 yield was 0.7%.

Consensus estimates

Year
end

Revenue
(€m)

Adj EBIT
(€m)

EPS
(€)

DPS
(c)

P/E
(x)

Yield
(%)

12/18

187.8

26.2

0.93

0.82

144.5

0.61

12/19*

221.6

31.2

1.34

0.84

100.3

0.63

12/20e

249.0

40.0

2.19

0.97

61.4

0.72

12/21e

281.3

49.0

2.60

1.0

51.7

0.74

Source: Stratec reports, Refinitiv. Note: *2019 as reported, not adjusted for Data Solutions.

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This report has been prepared and issued by Edison as part of a roadshow package for companies attending the Deutsches Eigenkapitalforum. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

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This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

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Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

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1185 Avenue of the Americas

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United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been prepared and issued by Edison as part of a roadshow package for companies attending the Deutsches Eigenkapitalforum. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. 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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, 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 securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. 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, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2020 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

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. 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 (i.e. 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.

United Kingdom

This document is prepared and provided by Edison 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.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison 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. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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