Anyone who thought that the plague of hospital-acquired infections, such as the deadly MRSA and Clostridium difficile, was solely a British problem would be mistaken. The situation is just as appalling overseas – in America, for example – as it is in the UK, with hundreds of thousands of hospital patients dying needlessly every year.
Gamble of the week: Tristel (AIM:TSTL)
The tragedy is that many of these deaths could be avoided simply by improving hygiene levels. This is where Tristel steps in. The company develops chlorine-dioxide-based disinfectants in the form of sprays, wipes and gels, which are used to sterilise surfaces and medical instruments, especially those that would be damaged by heat treatment. These products (which make up 80% of revenues) are sold largely in Britain to the NHS,private hospitals, primary care trusts, dentists and veterinary practices. In fact, such is the success of its patented technology that Tristel enjoys around a 60% share in the niche UK Liquid Chemical Germicide market. The other 20% of the business sells goods that fight the Legionella bacteria found in water and air-conditioning systems.
At last week’s preliminary results, underlying earnings per share (EPS) came in at 4.0p on turnover up 15.7% to £6.0m. Going forward, house broker Daniel Stewart is forecasting sales and EPS to increase to £7.6m and 4.5p respectively this year, rising steadily to £8.7m and 5.0p in 2010. The double-digit, top-line growth is being driven by supplying more disinfectants to different departments within hospitals, higher overseas orders, and from the launch of two new products: a washer called Shine for ears, nose and throat scopes; and Stella, aninjection-moulded sterilisation tray. For income seekers the company also pays a 4% dividend yield and has a small net cash balance.
The key issues to watch are that Tristel is relatively small and so could be squeezed by larger rivals. Additionally, being dependent on one science could make it vulnerable if a better technology is later developed, and it is also exposed to the vagaries of government spending habits. Nonetheless, for a business forecast to deliver earnings growth of about 10% a year over the next two years, in spite of its tax rate doubling from 14% to 28%, the shares look attractive for the more adventurous investor.
Recommendation: SPECULATIVE BUY at 45p (market capitalisation £12m)
• Paul Hill also writes a weekly share-tipping newsletter, Precision Guided Investments.