aap Implantate has announced a solid start to 2017 with Q1 trauma sales increasing by 30% to €2.9m and total sales up 23% to €3.1m, slightly ahead of company guidance of €1.8m to €2.8m. This is significant as 2017 is the first year following the company’s transformation into a pure trauma player and suggests that traction is starting to develop following initiatives to drive sales in the established markets. Increasing market penetration in Europe and the US remains key to a sustained return to growth.
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aap Implantate |
Solid start to 2017
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Healthcare equipment & services |
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18 May 2017 |
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aap Implantate is a research client of Edison Investment Research Limited |
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aap Implantate has announced a solid start to 2017 with Q1 trauma sales increasing by 30% to €2.9m and total sales up 23% to €3.1m, slightly ahead of company guidance of €1.8m to €2.8m. This is significant as 2017 is the first year following the company’s transformation into a pure trauma player and suggests that traction is starting to develop following initiatives to drive sales in the established markets. Increasing market penetration in Europe and the US remains key to a sustained return to growth.
Strategic progression starting to prove fruitful
In FY16 aap Implantate transitioned to being a pure trauma player following the divestment of its biomaterials business and remaining stake in aap Joints. The performance was affected by slow BRICS and SMIT markets and in particular missing sales in China. The company took strategic steps to focus more on established markets such as North America and Europe, which started to demonstrate traction toward the end of FY16. This trend is continuing in Q117 with a 16% increase in sales in North America and Europe to €2.1m from €1.8m in Q116. In addition, sales in BRICS and SMIT states are, according to the company, showing signs of stabilising. Q117 cash position was €27.4m, which on cash burn of €1.1m in Q117 indicates it has sufficient funds to continue to execute its strategy.
2017 could prove an important year
2017 is the first year that strategically aap Implantate is fully focused on trauma. It has three technologies in its trauma portfolio: its anatomical plating system LOQTEQ for fracture repair (being marketed); its antibacterial silver coating technology (in regulatory process); and absorbable magnesium (in development). Areas of focus which, if delivered, could render 2017 an important year include continued revenue growth in the established markets (North America and Europe), execution of a technology deal for its LOQTEQ and/or its silver coating technology with a larger player and decisive steps for CE marking and FDA approval for its silver coating technology. As sales growth gains traction, investor focus will be on the progression of its silver coating technology.
Valuation: Return to growth could offer upside
Against the backdrop of a successful Q1 indicating a possible return to growth, the potential offered by an increase in LOQTEQ’s indication coverage and a promising product pipeline, aap could have upside potential. The orthopaedics market is dominated by a small number of large companies, which are often acquisitive in order to bring in innovative products and/or improving existing products to create a leading, differentiated proposition. If aap delivers on its strategy and returns to sustained growth, the company could attract M&A interest.
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Reported financials
Source: aap Implantate accounts |
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Research: Consumer
In line with expectations, l-f-l revenues (46 weeks to 14 May) increased 1%, with a 13% growth in digital offsetting a slight revenue decline in Grosvenor Casinos’ and Mecca’s venues. Earlier platform issues have been resolved and we expect digital revenue growth to accelerate, with the H118 introduction of a single wallet fuelling market share gains. The core business is highly cash generative, enabling progressive dividends, as well as potential M&A. Despite this, the stock trades at a calendar 2017e 6.5x EV/EBITDA, a 30% discount to peers. Our estimates are unchanged.