Small Caps | Nov 29 2022
This story features NANOSONICS LIMITED. For more info SHARE ANALYSIS: NAN
A turn in sentiment has allowed Nanosonics shares to recover, with (some) broker views turning less negative.
-Post AGM weakness has been followed by a swift recovery for Nanosonic shares
-Company stated sales are tracking up 42% year-on-year, with lower volumes mitigated by higher prices
-Coris continues to present significant opportunity, but details still up in the air
By Danielle Austin
Times have been tough for shares in medical equipment manufacturer Nanosonics ((NAN)) post the all-time record high of $8 achieved during the general market euphoria of late 2020.
Earlier this year, share market turmoil saw the shares temporarily sink below $3 but successful recoveries have pulled the price back to around $4.50 a share.
A general market update at the company's AGM initially triggered renewed selling, but brokers Ord Minnett and Morgans responded with upgrades to respectively Hold and Add, no doubt assisting in the second share price recovery this year.
As far as the actual AGM update was concerned, the company reported a 42% sales increase in the first four months of the fiscal year, or 36% in constant currency terms. Notably, volumes decreased to an average 200 unit sales per month, from a prior average of 250 unit sales per month, with a price increase implemented by Nanosonics offsetting the impact.
The company continues to target sales growth of 20-25% over the year.
Coris launch remains significant opportunity for the company
Analysts remain largely positive on the longer-term opportunity presented by Nanosonics impending Coris device launch. The company remains committed to a launch in 2023, but additional detail is still lacking (and has been a main point of criticism).
The launch will initially be focused in Europe and markets outside the US. The launch has already faced lengthy delays as a result of engineering and chemistry complications, but early data have been promising.
Ord Minnett (upgraded to Hold from Lighten, target price $4.00) expects the strength of the first four months is such that Nanosonics will be able to beat full year sales guidance even while anticipating challenges later in the year.
The broker’s recent upgrade accounts for the potential for Nanosonics to lift FY23 guidance. Ord Minnett anticipates the higher revenue to drive a 60% profit boost for the company.
The broker is optimistic Coris will prove an important new product, and justify the elevated valuation.
The initial post-AGM weakness pushed the share price well below stockbroker Morgans’ target price of $4.91, triggering an upgrade to Add from Hold.
Morgans’ primary concern is around timing of the Coris launch, but expects the device can deliver a significant contribution to revenue and profit once regulatory approvals are secured.
Given lack of visibility around the timing of regulatory approvals, this broker includes only a modest revenue contribution from the yet to be launched device at this stage. Morgans is awaiting the company’s half-year results before adjusting forecasts.
Outside of daily coverage, Canaccord Genuity (target price $4.86) is the only broker to downgrade following Nanosonic’s trading update, shifting its rating to Hold from Buy.
This broker considers realisation of high-risk expectations for Coris to be a longer-term opportunity with uncertain timing. Canaccord anticipates the Coris launch could prove stronger than the launch of Nanosonics’ Trophon, and that Coris could catch up to Trophon in terms of revenue contribution within five years given the better understood infection risk with endoscopes.
Further, this broker suggests the company’s existing relationships could expedite purchasing decisions and see the device become standard of care faster than Trophon.
Citi, which is equally part of FNArena's daily monitoring (unlike Canaccord Genuity), hasn't updated recently. It's last rating was a Sell, kept in place following the release of FY22 financials in August. Citi's target price is $3.85.
Citi is also responsible for FNArena's consensus target remaining below today's share price as its target combined with Ord Minnett's and Morgans' only generates an average of $4.25.
Other brokers covering the company have equally elected not to update post the AGM.
Bell Potter upgraded to Hold earlier this month with a price target of $3.85. Wilsons stuck with Overweight in August, target $5.40. Goldman Sachs sits on Sell, with a price target of $3.40.
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