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An enhanced product portfolio and better commercial execution should drive a return to sustainable profit growth
Thursday 05 Aug 2021 Author: Martin Gamble

Convatec (CTEC) 225.6p

Gain to date 10.2%

Original entry point: Buy at 204.6p on 23 December 2020

Shares in medical products company Convatec (CTEC) have dropped approximately 13% since reporting stronger than expected first half growth and lifting guidance for full year organic revenue growth.

The share price reaction can be attributed to adjusted operating margin guidance being reduced by 0.5% to between 18% and 19% due to a mixture of cost inflation and additional investments into research and development as well as sales and marketing. Currency headwinds are expected to have around a 0.9% impact on reported margins.

The short-term headwinds over the next few months should prove temporary and must be seen in the context of the firm’s medium-term goal of achieving sustainable profitable growth.

Underlying sales growth has been consistently above guidance for some time and second quarter organic growth of 7.4% was no exception and marked the fourth consecutive quarter of growth above the top end of guidance.

Consistently higher revenues allow the company to drive further growth by investing into sales, marketing and research and development, argues Numis Securities.

SHARES SAYS: Short term share price weakness has presented a good opportunity for long term investors. Buy. 

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