It specialises in infection and contamination control
Thursday 27 Feb 2020 Author: Martin Gamble

Even before the appearance of China’s coronavirus, infection and contamination-control products group Tristel (TSTL:AIM) was delivering strong growth as it taps into increasing demand for safe, high-level disinfectants that kill all microorganisms.

On 24 February the company reported revenue for the six months to 31 December 2019 up 22% at £14.6m accelerating from the 18% growth in the prior half while pre-tax profit advanced 25% to £3m.

Chief executive Paul Swinney says the coronavirus provides a significant tailwind for the company, commenting: ‘As a globally-recognised infection prevention brand, with some of the world’s best-known disinfection technology, there are significant macro factors that will support Tristel’s continued progress.’

The company’s unique disinfectant formulation is effective against all viral strains including coronavirus. As testament to the effectiveness of its products the firm recently shipped 10 pallets of its surface disinfectant to the Chinese military despite it not being formally approved there.

Growth is underpinned by new product approvals and the company expects to receive its first medical device approval in India during the next few months.

Despite rising 60% over the last year we expect the shares to be supported by strong business momentum which is likely to be sustained by an environment characterised by heightened worries over the spread of infectious disease.

THE RIGHT CHEMISTRY

The founding shareholders developed a proprietary chlorine dioxide formulation in 1993 for use in flexible endoscopes to replace Glutaraldehyde which was traditionally used to sterilise medical instruments.

Glutaraldehyde was known to be toxic which allowed Tristel to capture significant market share with its unique formulation.

The company developed a number of products and applications for its formulation which is used to disinfect ultrasound probes as well as other medical instruments and hospital surfaces.

Tristel has delivered a consistent record of revenue, profit and dividend growth since listing in 2005, and is one of only a handful of businesses specialising in infection prevention and contamination control.

The company is very profitable, boasting gross margins of 79% and delivering consistent returns of equity of around 20%, reflecting a high quality business.

This is reflected in the valuation, which at 31.6 times consensus forecast June 2021 earnings per share leaves limited margin for error.

But management have global growth ambitions having established distributors and direct operations across the globe. In December it received approval for a so-called De Novo (New) process from the US Federal Drug Agency (FDA) which provides a pathway to approve novel medical devices.

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