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Research: Healthcare
Creo Medical reported an active first half of the year in its trading update. Preliminary results showed improved adoption of its flagship offering, Speedboat Inject, driven by a growing user base expanding over new territories and its ability to address the full GI tract with its recent CE mark for upper GI procedures. Total revenue accelerated 15.4% y-o-y to £15.7m (from £13.6m in H122), largely in line on an annualised basis with our prior FY23 forecast of £32.8m. Operating expenses remained largely flat, resulting from reduced R&D expenses and improved cost control measures. While we expect further expansion of the Speedboat user base to remain a strategic priority, we anticipate several key catalysts, including advancement of the Intuitive partnership, extended use of Kamaptive technology, FDA approval for Speedboat Flush and NICE guidance on UK reimbursement. As we await full H123 results in September 2023, we have put our estimates and valuation under review.
Written by
Creo Medical |
Growth momentum with core strength |
H123 trading update |
Healthcare equipment and services |
4 August 2023 |
Share price performance
Business description
Next events
Analysts
Creo Medical is a research client of Edison Investment Research Limited |
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Creo Medical reported an active first half of the year in its trading update. Preliminary results showed improved adoption of its flagship offering, Speedboat Inject, driven by a growing user base expanding over new territories and its ability to address the full GI tract with its recent CE mark for upper GI procedures. Total revenue accelerated 15.4% y-o-y to £15.7m (from £13.6m in H122), largely in line on an annualised basis with our prior FY23 forecast of £32.8m. Operating expenses remained largely flat, resulting from reduced R&D expenses and improved cost control measures. While we expect further expansion of the Speedboat user base to remain a strategic priority, we anticipate several key catalysts, including advancement of the Intuitive partnership, extended use of Kamaptive technology, FDA approval for Speedboat Flush and NICE guidance on UK reimbursement. As we await full H123 results in September 2023, we have put our estimates and valuation under review.
Year end |
Revenue |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/21 |
25.2 |
(29.7) |
(14.6) |
0.0 |
N/A |
N/A |
12/22 |
27.2 |
(31.0) |
(14.9) |
0.0 |
N/A |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
H123 sustaining growth in core technology
In H123, Creo recorded total revenue growth of 15.4% y-o-y to £15.7m, driven by its mature endotherapy consumables business and improved traction for its core technology products. Consumables grew 11.7% y-o-y to £14.3m, mainly led by its recent expansion into the US market (with first sales generated in H123). Revenue from core technology products (including flagship Speedboat) of £0.9m remain small but roughly doubled from £0.4m in H122, driven by an increased number of new users, expansion into new territories and the launch of the slimmer Speedboat Inject device in late 2022. While revenue from Kamaptive collaboration agreements remained flat at £0.5m in H123, management expects the growth momentum shown in H123 across the overall business to continue into H223.
Kamaptive technology holds key for potential upside
While Creo continues to progress on its existing Kamaptive licensing partnerships with Intuitive and CMR, upside potential lies in the commercialisation of CROMA technology through its usage in robotic procedures. While we await details on the development status of these collaborations, the Intuitive agreement remains the key growth catalyst, in our view, given the wide reach of its robotic systems.
Valuation
We have placed our valuation and estimates under review pending the full H123 results, expected in September 2023. We continue to anticipate the pro forma net cash balance at end December 2022 of £33.4m (which incorporates the £32m fund raise completed in Q123) should see the company to net profitability in H126.
FY23 focus on Speedboat Inject commercialisation
Pioneer programme paves way for improved adoption
During the first half of the year, Creo witnessed improved traction for the Speedboat Inject device, which was reflected in an increased number of Speedboat Inject-assisted procedures and a growing pipeline of clinicians under its Pioneer training programme. Proliferating from its ongoing multinational training events, the total number of confirmed Speedboat users increased 43.8% to 115 at end-June 2023, compared to 80 users at end FY22 (26.4% growth from 91 users at end Q123). In terms of procedures, Speedboat Inject cases in both Q123 and Q223 were 50% higher than the quarterly average of FY22. The uptake in the Speedboat user base was also supported by its expansion into new territories like Croatia, Slovenia, Malaysia and the United Arab Emirates in H123. In an encouraging development, the company observed a fast-paced adoption of Speedboat Inject in the Asia-Pacific region, with AIG Hyderabad Hospital in India being the first site in the region to reach 50 patients treated using Speedboat Inject. With COVID-19 restrictions withdrawn in the Asia-Pacific region and Creo’s regional hub in operation, the company foresees strong growth opportunities with the launch of new products in the region during H223.
Demonstrating the effectiveness of Creo’s training programme, Royal Oldham Hospital (UK), an NHS facility, signed up for Creo’s CROMA technology platform, Speedboat Inject and related endotherapy products (in May 2023) after three doctors at the hospital enrolled in Creo’s Pioneer training programme and successfully performed their first in‐hospital Speedboat Submucosal Dissection procedures using Speedboat Inject in April 2023. This was followed by over a dozen additional procedures and the hospital shared its weekly list of planned Speedboat-assisted dissection cases to indicate the quantum of upcoming orders for the device and associated equipment to support the medical procedures. Based on the hospital’s initial response, Creo expects it be a high usage site for its products. The Royal Oldham Hospital is the 23rd NHS England healthcare unit to adopt Speedboat Inject in its procedures and the company has a target base of more than 350 hospitals for the Speedboat range of products in the UK. A further validation for the device could be the upcoming reimbursement ruling by the National Institute for Health and Care Excellence (NICE), which selected Speedboat Inject for assessment in June 2023.
CE mark for upper GI expands the addressable market
In June 2023, Creo Medical received a CE mark for Speedboat Inject for upper gastrointestinal (GI) procedures. This CE mark extension nearly doubles the device’s scope across all GI tract procedures in Europe and will likely create new surgical opportunities for additional indications (upper GI) as well as increasing the total user base in the near to medium term. According to management, upper GI procedures in the US account for more than 40% of global Speedboat Inject procedures to date. As the Speedboat Inject device is already in use for full GI tract procedures for cutting and coagulation of soft tissue using radiofrequency and microwave energy across the US and Asia-Pacific, we expect a quick turnaround into regular users for upper GI procedures in Europe.
Product line expansion to access broader user base
Following positive response for Speedboat Slim, a slimmer version of Speedboat Inject (launched in November 2022) in H123, management expects Speedboat Flush (the slimmest version of Speedboat and currently under FDA review) to sustain the growth momentum in H223 and beyond. As a reminder, Speedboat Flush is compatible with endoscopes with a 2.8mm working channel, targeting GI lesions (including bowel and upper GI cancer) and swallowing disorders. We note that standard upper endoscopes have an external diameter in the range of 8.0–9.8mm with a 2.4–2.8mm channel. Creo expects that the device, after successful regulatory clearance, will be ready for clinical use in Q423.
In addition, the company announced a multicentre observational study in April 2023 to assess the safety and efficacy of MicroBlate Flex, a soft tissue microwave ablation device for both liver and pancreas. We note that the device has been CE marked in Europe and received FDA clearance in January 2021. The primary completion of the study is anticipated in March 2024, while full study completion is expected in March 2025. The user data, if positive, might lead to enhanced adoption of the device.
Valuation: Under review as we await H123 full results
We have placed our valuation and estimates under review pending the full H123 results expected in September 2023. Nonetheless, we continue to anticipate the pro forma net cash balance at end December 2022 of £33.4m (which incorporates the £32m fund raise completed in Q123) should see the company to net profitability in H126.
As a reminder, in February 2023, Creo raised £28.5m in gross proceeds (£26.8m net) through institutional investors by placing 142.5m new ordinary shares at 20p/share. The fund-raise was oversubscribed against the minimum target of £25m, indicating strong shareholder support. In addition, the company had an open offer to existing eligible shareholders to raise another £5.2m in funds via the conditional issue of c 26m ordinary shares, which was fully subscribed in March 2023.
Exhibit 1: Financial summary
£000s |
2021 |
2022 |
||
Year end 31 December |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||
Revenue |
|
|
25,161 |
27,169 |
Cost of Sales |
(13,576) |
(14,047) |
||
Gross Profit |
11,585 |
13,122 |
||
Research & Development Expenses |
(12,869) |
(13,492) |
||
Sales, General & Administrative expenses |
(25,490) |
(27,325) |
||
EBITDA |
|
|
(19,982) |
(20,805) |
Underlying EBITDA (Adjusted for R&D tax credit) |
|
|
(14,238) |
(16,764) |
Operating profit (before amort. and excepts.) |
|
|
(29,284) |
(30,756) |
Intangible Amortisation |
0 |
0 |
||
Other |
52 |
51 |
||
Exceptionals |
(623) |
0 |
||
Operating Profit |
(29,907) |
(30,756) |
||
Net Interest |
(432) |
(221) |
||
Other |
0 |
0 |
||
Profit Before Tax (norm) |
|
|
(29,716) |
(30,977) |
Profit Before Tax (reported) |
|
|
(30,339) |
(30,977) |
Tax |
5,744 |
4,041 |
||
Deferred tax |
0 |
0 |
||
Profit After Tax (norm) |
(23,972) |
(26,936) |
||
Profit After Tax (reported) |
(24,595) |
(26,936) |
||
Average Number of Shares Outstanding (m) |
164.4 |
181.3 |
||
EPS - normalised (p) |
|
|
(14.58) |
(14.85) |
EPS - Reported (£) |
|
|
(0.15) |
(0.15) |
Dividend per share (£) |
0.0 |
0.0 |
||
BALANCE SHEET |
||||
Fixed Assets |
|
|
39,442 |
41,650 |
Intangible Assets |
27,255 |
27,643 |
||
Tangible Assets |
8,603 |
10,184 |
||
Other |
3,584 |
3,823 |
||
Current Assets |
|
|
61,167 |
33,687 |
Stocks |
8,504 |
9,325 |
||
Debtors |
4,830 |
6,765 |
||
Cash |
43,534 |
13,097 |
||
Other |
4,299 |
4,500 |
||
Current Liabilities |
|
|
19,737 |
17,483 |
Creditors |
9,921 |
9,000 |
||
Short term borrowings |
5,381 |
5,616 |
||
Other short-term liabilities |
4,435 |
2,867 |
||
Long Term Liabilities |
|
|
7,554 |
8,451 |
Long term borrowings |
5,175 |
6,067 |
||
Other long term liabilities |
2,379 |
2,384 |
||
Net Assets |
|
|
73,318 |
49,403 |
CASH FLOW |
||||
Operating Cash Flow |
|
|
(23,199) |
(24,955) |
Net Interest |
(463) |
(287) |
||
Tax |
(2,349) |
258 |
||
Capex |
(6,122) |
(3,274) |
||
Acquisitions/disposals |
(1,752) |
(2,753) |
||
Financing |
34,208 |
0 |
||
Dividends |
0 |
0 |
||
Other |
0 |
0 |
||
Net Cash Flow |
323 |
(31,011) |
||
Opening net debt/(cash) |
|
|
(32,737) |
(32,978) |
HP finance leases initiated |
0 |
0 |
||
Exchange rate movements |
(303) |
(56) |
||
Other |
221 |
(497) |
||
Closing net debt/(cash) |
|
|
(32,978) |
(1,414) |
Source: Company reports, Edison Investment Research
|
|
Research: Metals & Mining
Agnico Eagle Mines (AEM) reported record quarterly gold production of 873koz in Q223 at a US$840/oz total cash cost and a US$1,150/oz all-in sustaining cost (AISC) that drove strong financial results of adjusted EPS of US$0.65/share and operating cash flow of US$1.46/share. Record-breaking production reflects 100% ownership for the full quarter of Canadian Malartic, which will add c 80–90koz in attributable production per quarter. Additionally, AEM recorded the safest half-year performance in its history. Guidance for FY23 has been reiterated at 3.24–3.44Moz at a cash cost of US$840–890/oz and AISC of US$1,140–1,190/oz. The quarterly dividend remains at US$0.40/share.