Consort Medical: Bespak To Be Core Business, Once Again

Consort Medical will soon consist only of the Bespak division, as the King Systems divestment is set to complete on 15 February. The disposal will bring in an immediate $120m, with a further $10m expected in April and the remaining $40m contingent on a King Vision-based, three-year earn-out. Although the funds will initially be used to strengthen the balance sheet, acquisitions to bolster the Bespak operations are expected. We have also taken the opportunity to review our FY14 forecasts, with revenues decreasing from £102.8m to £99.6m and EPS down from 46.2p to 41.7p.


Bespak is platform for organic growth and acquisitions
Bespak will shortly be the core business once more, as the focus for Consort Medical shifts to pharmaceutical services. Bespak is well positioned to expand its activities into adjoining segments of the drug-device supply chain and is actively targeting more on-site manufacture and filling projects, with two recent contracts incorporating drug handling and filling (eg the nasal and Nicoventures nicotine delivery contracts).

Balance sheet will shortly be flush with cash
The King Systems divestment is scheduled to complete on 15 February. Initially, the proceeds will be used to pay down the existing debt, but tellingly, the current loan facilities will stay in place. The strategy remains to bolster the core Bespak operations with both organic investment and acquisitions. These investments will seek to exploit the existing skills and expertise and will involve complex design expertise, high-volume production and operating in regulated markets.

Reviewing our FY14 forecasts
We have taken the opportunity to review our forecasts for FY14, with attention to the likely timings of important new product launches. The prospects for the Nicoventures nicotine device are particularly appealing, but the timings of such regulated products are always uncertain. In line with our conservative approach, we have reduced our FY14 revenues from £102.8m to £99.6m, with EPS down from 46.2p to 41.7p.

Valuation: Maintaining our 880-905p valuation range
While the divestment will initially decrease the reported profits, we believe Bespak’s prospects, both organic and any likely acquisitions, are currently very promising. We had previously valued the shares in a range of 880-905p and maintain our view in anticipation of greater vision for revenue growth, as well as potential acquisitions.

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