Nanosonics: Solid start to the year

Author name:: By Scott Power
Job title:: Senior Analyst
Date posted:: 22 November 2022, 7:00 AM
Sectors Covered:: Healthcare, Life Sciences

At its AGM Nanosonics (ASX:NAN) provided a four-month trading update which showed a solid start to the year, with revenue up 42% and an increase in the installed base of 814 units.
The CORIS® program is scheduled for limited market launch in calendar 2023 in selected regions most likely Europe and/or Australia. We remain cautious around the timing of this launch schedule. We do not forecast revenue until FY24.
We recently upgraded our forecasts reflecting favourable currency moves and sit slightly above NAN’s recent revenue guidance range of growth of 20% to 25%. Although the year has started well for NAN with revenue up 42%, we prefer to wait until the 1H23 results before adjusting any forecasts.
As a result our target price remains unchanged at (login to view) and given the recent share price strength we move to a Hold rating (from Add).

Event

AGM presentation and four-month trading update.

Analysis

NAN noted revenue up 42% (36% in cc) to A$52.6m (capital sales up 63% and consumables up 35%).

If we annualise this revenue it comes in at A$157.8m which is above the guidance range of A$144m to A$150m and ahead of consensus at A$150.6m and Morgans at A$151.5m, so it is fair to assume consensus forecasts look achievable.

The global installed base has grown to 30,665 (up 814 units since 30 June 2022) and includes replacements which are up 51% on pcp.

The major R&D program underway is the flexible endoscope known as CORIS®. Management is targeting progressive market introductions aligned with regulatory approvals, with the first introduction targeted for calendar 2023 and likely to be in Australia and/or Europe.

We remain cautious on whether this timeline can be achieved, particularly the introduction into the European markets where the regulatory process has become more complex over the last two years according to a number of our channel checks.

Forecast and valuation update

We have made no changes to forecasts, preferring to wait for the 1H23 result. The company has not updated its current FY23 guidance of revenue growth of 20% to 25% (A$144m to A$150m).

We believe this revenue range will be comfortably achieved and both Morgans and consensus sit slightly above at A$151.5m (Morgans) and A$150.6m (Consensus).

In subsequent years profit growth is expected to resume with consensus forecasting FY24 NPAT of A$12.7m (Morgans A$13.8m) and FY25 NPAT of A$22.7m (Morgans A$21.8m). We do not expect a contribution from the CORIS® product until FY24 (revenue of $8.2m).

As a result our valuation remains unchanged at (login to view). We have set the target price at the same range.

Investment view

Given the strong share price run, NAN is now trading within 10% of our target price and we move back to Hold (from Add).

Price catalysts

Further update on CORIS® program.
1H23 result to be released mid-February

Risks

Delays in commercial launch of CORIS®, the flexible endoscope cleaning device.
Slower sales traction with the direct sales model in the US.

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