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Treasure Chest: How Much Covid Impact For Nanosonics?

Treasure Chest | May 13 2021

This story features NANOSONICS LIMITED. For more info SHARE ANALYSIS: NAN

Amidst divergent views on Nanosonics, Bell Potter has identified the company as a primary victim of global covid restrictions and delays.

-Offshore government failures to cope with covid have limited progress for Nanosonics
-That long-awaited second product seems due for yet another delay
-Bell Potter thinks the release of FY21 financials in August will disappoint

By Rudi Filapek-Vandyck

If one had to nominate one healthcare company whose fortunes have been impacted by the global pandemic, the obvious choice, outside of usual suspects CSL and ResMed, would be to nominate hospital infection preventer Nanosonics ((NAN)).

At the start of calendar year 2021 its share price was trading above $8. This week it fell to $5.25; not far off from the low in late last year's sell-off that took the share price temporarily some -20 cents lower. In the midst of early last year's panic driven covid market turmoil, the share price sank another dollar lower.

Measured from the early January all-time high, Nanosonics shares have now fallen close to -35% but investors should not assume a value opportunity has automatically opened up. At least not according to Bell Potter's latest research update on the company.

Investors have been waiting for a few years now on Nanosonics' new product announcement, but Bell Potter suggests no positive news should be expected on this part of the business as the ongoing presence of covid around the globe makes recruitment for clinical trials in the US too risky.

Other than for oncology trials, Bell Potter reports US hospitals have mostly suspended clinical trial programs. The underlying suggestion made is that Nanosonics' management will have to keep postponing the launch of its second product in development.

As far as the company's primary product, the Trophon, is concerned, the outlook for revenues in Europe remains bleak as governments have continued to struggle in their attempt to contain the virus and roll-out vaccinations. While things seem to have improved significantly in the UK, Bell Potter believes second half revenues from Europe might be flat, at best.

When looking at market consensus which is for FY21 revenues of $103m and operational earnings (EBIT) of $5.8m Bell Potter thinks the odds are in favour of Nanosonics disappointing the market in August. Downgrades to FY22 and FY23 projections are seen as the most likely outcome once Nanosonics has released FY21 financials.

As an indication as to where Bell Potter sits in comparison to other analysts, the broker has reduced EBIT forecasts for FY21 and FY22 by -40% and -35% respectively. Its share price target has now fallen to $4.50 from $4.95 previously. Bell Potter does suggest it is likely Nanosonics will be experiencing better conditions in the second half, as the US is now dealing better with the virus and vaccines, but it simply won't be enough to save the company's bacon for the whole year.

In terms of earnings per share estimates, today's update translates into 0.7c for FY21, 2.3c for FY22 and 5.3c for FY23. In comparison, FNArena's market consensus has 2.5c for FY21 and 6.2c for next year.

Nanosonics is covered by four of the seven stockbrokers monitored daily by FNArena. Those four show severely divergent views as far as Nanosonics as an investment is concerned.

Ord Minnett is sitting on the fence with a Hold rating and $5.40 price target, but Citi has been on Bell Potter's side for quite a while now, equally suggesting investors and analysts have been too optimistic on what can possibly be achieved during times of severe covid-fallout.

Citi's Sell rating and $4.30 price target are being offset by positive views at Morgans and UBS where price targets are still at $6.69 and $7 respectively. As is often the case when views are diverging, the latter two stockbrokers have taken a medium-term view, arguing this former market darling remains poised to accelerate into higher growth numbers again, once covid is no longer such a dominant feature.

None of the brokers still has the second product launch on its radar anytime soon. The last update from Morgans, following the interim report in February, expresses the view Nanosonics will develop and launch multiple new products and platforms on a five-year horizon.

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