Stratec Biomedical – QuickView

Stratec’s interim results appear to be following a year growth pattern of 10-20% quarter-on-quarter growth. Guidance remains unchanged. To achieve the lower revenue target of €125m, H2 sales need to be 28% higher than H112; this growth would be lower than that achieved in 2010 and 2011 at 36% and 40% respectively. The upper guidance of €139m requires a stunning €50m Q4 performance and a 53% H1 vs H2 growth rate.

Q2 performance
The FDA approval of the Gen-Probe Panther molecular diagnostics system on 8 May was too late to impact significantly on Q2. At €29m, revenues were 15% up on Q1 but only after a €3.3m Q1 adjustment. On unadjusted revenues, Q2 was flat; EBIT in H1 was 17%. EBIT is strongly influenced by spare part sales, which slowed temporarily; new units contribute less, so a 17-18% EBIT is probably realistic.

Acquisition of Gen-Probe; DiaSorin battles on
The agreed acquisition by Hologic of Gen-Probe has been cleared by both the US and German authorities (the latter on 17 July). The deal should complete by the end of Q3. The DiaSorin Q2 figures are not out until 3 August. Swapping the XL for the old Liaison is key to DiaSorin’s future, so seeing how this is performing is important.

Guidance: Unchanged from May but top end optimistic
The Gen-Probe acquisition implies that it may not be fully focused on the Panther US launch so Q3 placements may be slower than hoped. However, Gen-Probe expectations remain unchanged. The guidance rests on Q4 but €50m+ revenues to hit the upper €139m level seems optimistic, although there are €31m of unfinished goods on the balance sheet that are recognised as projects end. Given Q2, €130m seems achievable. Stratec’s management has postulated a range of 14-16% CAGR to 2014. This implies a 20-25% growth in 2013 to make management’s €160m target. The long-term outlook remains strong.

Valuation: Strong 2013 outlook after 2012 pressures
Stratec remains a long-term growth investment, although currently reliant on a few key customers. In H2 and 2013, Stratec’s inherent strengths should become apparent. 2012 EBIT at the bottom of the guided 17-19% range might only be €22m vs €21.1m in 2011, reflecting H1 investment (€3.1m). Cash flow was €4.4m after capitalised R&D of €7.8m. The dividend cost of €6.6m caused H1 cash to fall to €17.7m. With an EV of €343m and €130m 2012 sales, the EV/Sales is a robust 2.6x.

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