NAN: What do they do ? Today I want to take a quick look at Australian Medical Technology Company Nanosonics (NAN), what they manufacture and sell and quickly explain without too much jargon and technicality why their product is needed and then overview briefly some of the potential issues that have kept it out of our portfolios at least for now.
This company makes a medical tech machine,the compact Trophon EPR and consumables relating to its ongoing use. The Trophon EPR is a purpose-specific unit for antibacterial cleaning and sterilisation of ultrasound wands and probes without the damage of a UV steriliser or boiling water. It is compatible with over 1000 models of ultrasound wand/scope,and for ease of use, compatibility can be found via their website with a few clicks of the mouse. According to the product demonstration video,a cartridge of Trophon (a proprietary hydrogen peroxide combination)is installed into the unit.The probe is placed inside of the unit and sealed for fumeless, safe operation.One complete cycle takes 7 minutes during which time a dose from the multi-use cartridge is nebulised into the chamber. The active ingredients attack any and all contaminants that are found, effectively penetrating the cell wall of 100% of the bacteria and exploding them. Finally; the solution is neutralised and removed as a harmless by-product of oxygen and water.
There is a much larger product on the market already, made by Gallay Medical and Scientific. It uses three separate single shot chemicals is connected via a tap and flows around 4 litres of water per minute and takes 14 minutes to complete a cycle, a lot of downtime for offices with back to back appointments. Previous methods of cleaning and sterilisation include antibacterial wipes, bathing wands in antiseptic product and the continued use of condoms or protective sleeves for internal probes. These methods have flaws a wipe may miss a contaminated area, and the maximum effective of an antibacterial bath can be as long as 45 minutes. The need for improved infection prevention is second to none, looking at Australian Hospitals alone, one of the only in the OECD who doesn’t officially report infection statistics there are 165,000 cases* of infection per year.
Their 2016 performance looks stellar, then in 2017, we see a drop in sales revenue, followed by a more significant drop in net profits of 90%. As we explored the financials further, it was easy to see a significant portion of the earnings per share came from tax benefits, specifically “utilisation of unrecognised deferred assets in foreign jurisdictions. In 2017 we saw a negative change in sales of approximately 7 million but a drop in Net Profit of 20 Million, earnings per share falling to 10% of the 2016 result. The benefits of this tax treatment were no longer present in the financials in 2017. Based on our calculations the current price of $2.65 sees NAN overvalued, and we see a fair value estimate of around $1.60 per share on current earnings.
This is general information only and does not constitute financial advice, investment in financial assets can cause losses and should be undertaken at your own risk or after seeking professional advice.
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