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.
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Stratec SE |
Strong sales growth helped by COVID-19
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Medtech |
Deutsches Eigenkapitalforum 2020
19 October 2020 |
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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%.
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Consensus estimates
Source: Stratec reports, Refinitiv. Note: *2019 as reported, not adjusted for Data Solutions. |
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Research: Industrials
An explicit and substantially positive update from Norcros points to a strong Q2 trading recovery after a COVID-19 affected Q1 and a significant reduction in net debt to modest levels. The company’s portfolio of businesses have demonstrated resilience and agility in being able to respond to these variable demand conditions and in doing so have probably enhanced the group’s competitive position. Our estimates remain suspended ahead of the H121 results announcement on 12 November.