A couple of weeks back on the 23rd March 2015, I topped up on my Tristel TSTL holding at 73p after some superb Results. I have been in this Company for quite a while - maybe even a year, but I like the story here and it really strikes me that they are increasingly gaining acceptance with Customers with regard to their Infection Control offerings.
It is quite a small Company, with a Market Cap around £30m and is listed on AIM. This makes it inherently Risky and I have put about 2.5% of my Total Portfolio Value in it. I expect to hold this for the Long Term - and maybe several years if all goes to plan.
TSTL Develops and Manufactures Chlorine Dioxide based Infection Control Products targeted at the following Market Subsectors:
- Human Healthcare - under the Tristel Brand - ENT (Ear, Nose & Throat), Cardiology, Radiology, IVF (In-Vitro Fertilisation), Ultrasound, Endoscopes etc.
- Contamination Control - under the Crystel Brand - Pharmaceutical and Personal Care Industries, Cleanrooms, Cosmetics, Pharmacy, NHS (National Health System - UK).
- Animal Healthcare - under the Anistel Brand - Infection Prevention and Control, Vets, Kennels, Stables, Breeders, Catteries, etc.
The Products are Repeat Use Consumables, which means once they gain acceptance by Customers there are regular repeat orders. The Products tend to be ‘Sticky’ - once a Customer is happy with the Products and used to working with them, they tend not to change. The Company has 100 Patents and others pending, and roughly 75% of Products are Patent Protected until 2028-2029.
For more detail on TSTL’s Products, please click this link:
I found some of the Information on the Website confusing. At one point it says that the Animal stuff is sold under the Anistel Brand, but then I found elsewhere that there are Brands like Dermastel, Enzystel, Medistel, Airstel and Odostel. It struck me that the Company’s Website is a bit rubbish really - seems like they could do with focusing some effort on improving this.
The conventional view of TSTL is that they do Infection Control Wipes for Endoscopes - but having poked around the Website, I think this is simplistic and in fact they do a huge amount more than this. The Wipes are used for Instruments but they also do a range of stuff for Surfaces. They also seem to do some Legacy Products that are not Chlorine Dioxide based - I understand from the most recent Trading Update that they will be winding these down and focusing efforts on the Chlorine Dioxide stuff - this seems like a very sound Strategy.
However, the Wipes are clearly a key part of their success, with their method being the most widely used in the NHS for ENT, Cardio and Ultrasound. TSTL also provide Liquids, Foams, Sprays and Gels for Surface Cleansing and Decontamination and the Chlorine Dioxide method works against MRSA (meticillin-resistant staphylococcus aureusis), C-Diff (Clostridium Difficile) and Norovirus. Human Products account for about 60% of Revenues.
The Company was formed in 1993 and listed on AIM in 2005. A Manufacturing Plant in Cambridge, UK, was completed in 2007 and at the end of September 2014 they expanded the Factory, Offices and Warehouse capacity. The Anistel Brand was created in 2012.
TSTL’s products are sold in over 25 countries. In most countries the products are sold through a national distribution partner, however, TSTL has its own operations in the following countries:
- Tristel Solutions Ltd - German branch based in Berlin, serving the Austrian, German and Swiss markets.
- Tristel International Ltd - Russian branch, based in Moscow.
- Tristel New Zealand Ltd - based in Tauranga, North Island, covering New Zealand and Australia.
- Shanghai Stella Medical Equipment Co Ltd - based in Shanghai, serving China and Taiwan.
- Tristel Asia Ltd - based in Hong Kong.
- Tristel Italia Srl - based in Milan.
The Company’s Website can be reached via this link:
There are some interesting Case Studies here which give an indication of how attractive TSTL’s Chlorine Based Products are:
TSTL released Interim Results on the 25th February 2015. You can read them here:
I found this a very positive Statement and it tipped me over the edge to buy more - I really think the Company is on a Roll and has the potential to be a great Growth Stock over many years.
The bits that stood out for me here were:
- Revenue up 15% to £7.4m.
- Internationals Revenue up 26% to £2.4m.
- Dividend up 63% (that’s a huge sign of confidence and demonstrates Cash Generation.)
- Net Cash £2.9m.
- Very positive Outlook Statements from both the CEO and the Chairman.
- There are various statements regarding EBITDA and Profit - bit of an Accounting nightmare but all strongly up !!
- It is worth noting that the Company has high Operating Leverage - once the Fixed Cost Base is covered, a larger Chunk of Revenues drops straight through to the Profit line.
- TSTL has a Target to increase Revenues by at least 50% by Financial Year 2016/2017 - they appear to be ahead of this Target.
- They are achieving near 15% Pre-Tax Profit Margin.
- Francisco Soler, Interim Chairman, (Chairman of Remuneration & Nomination Committees) - a founding shareholder of the Group and has been an active investor in a number of companies around the world. Among them, he was a member of the Board of United States Can Company (US Can), a company that was listed on the New York Stock Exchange before being taken private by a private equity Group. He was chairman of Leisure Tennis Limited, the owner of the Harbour Club leisure facility in central London, which was sold to Cannons Group Plc in August 1998 and of Harbour Club Milano which was sold to the Aspria Group in 2009. He is a Knight of the Order of Malta.
- Paul Swinney, Chief Executive (Member of Nomination Committee) - started his career with Brown, Shipley & Co in 1980. He worked for the European banking operations of Norwest Bank Minneapolis and Maryland National Bank, before joining OSI Finance, a specialist in shipping finance, in 1987. In 1993 he co-founded the business that was to become Tristel Plc. He has been chief executive and a shareholder since inception.
- Liz Dixon, Finance Director - Liz Dixon trained with BDO before moving into industry with the Holiday Property Bond Group, where she developed her career ultimately becoming UK finance manager. Having joined Tristel in 2007 as chief Group accountant, Liz went on to join the Board of Tristel Solutions Ltd in August 2009 and was appointed as Group finance director in June 2010.
- Paul Barnes, Non-Executive Director (Chairman of Audit Committee and member of Remuneration committee) - is a Chartered Certified Accountant with extensive experience of developing SME businesses from concept to listing and sale. He was a founder and finance director of Tradepoint Financial Networks plc, which was admitted to trading on AIM and achieved formal recognition as a Recognised Investment Exchange during his time at the company. He was formerly finance director of Oxford Catalysts Plc. He was appointed to the Board of Tristel Solutions Ltd in June 2004 and was finance director through the Group’s IPO and listing until June 2010.
The interests of the directors in the shares of the Company at 31 December 2014 were:
- Paul Swinney 900,000 Ordinary 1p shares, 2.21% of issued Shares.
- Elizabeth Dixon 45,067 Ordinary 1p shares, 0.11% of issued Shares.
- Francisco Soler 10,624,988 Ordinary 1p shares, 26.12% of issued Shares.
- Paul Barnes 612,680 Ordinary 1p shares, 1.51% of issued Shares.
The total number of shares not held in public hands at 31 December 2014 was 12,182,735, constituting 29.95% of the company’s share capital.
I think this means that 30% of the Shares are held by the Directors !! It’s fair to say they have ‘Skin in the Game’.
From the Company’s Website, the following were interested in 3% or more of the Company’s equity at 31 December 2014:
- Barclays Stockbrokers - 3,194,527 Ordinary 1p shares, 7.85% of issued Shares.
- Hargreaves Lansdown Stockbrokers - 2,621,889 Ordinary 1p shares, 6.45% of issued Shares.
- Amarti Global Investors - 1,841,046 Ordinary 1p shares, 4.53% of issued Shares.
- Unicorn Asset Management - 1,635,329 Ordinary 1p shares, 4.02% of issued Shares.
- TD Waterhouse Stockbrokers - 1,502,546 Ordinary 1p shares, 3.69% of issued Shares.
- TSTL is a Small AIM Company and there are inherent Risks in this. For that reason, I have only put 2.5% of my Total Portfolio Value in it.
- EU Regulation could be more expensive with regard to making TSTL Products comply - this could mean a hit to Profits in future years and in the worst case, it might mean the Company needs to take on debt or perhaps a Rights Issue. However, as the Company stated in its recent Update, such Regulation could drive out smaller competitors.
- A new technology comes along which is superior to TSTL’s Chlorine Dioxide based Products. This is possible, but TSTL’s stuff is quite new in terms of Market Acceptance and I suspect that they have a clear lead for at least a few years. They have strong Patent Protection.
- Government Austerity Policies could hit demand for TSTL products. However, for the UK, Healthcare is an extremely Politically Sensitive area and it is unlikely that big Spending Cuts will come here. Similar Policies abroad could impact demand.
- It seems quite likely that TSTL could get taken over by a larger Group in the future. The Risk to Shareholders is that it gets bought out at a low Valuation well before the true Value is realised for Shareholders. A high class problem though and it is the kind of Risk I am very happy to take on !!
Right, now we get to the fun bit for me - a lot of the previous stuff is quite tedious to write, but now we are getting to the Good Stuff (as Paloma Faith would say).
For Next Year (2016), ShareScope is showing Consensus EPS (Earnings Per Share) Forecasts of 4.83p. At the Price I recently paid of 73p, this means a P/E Ratio of 15.1.
For Next Year (2016), the Forecast Consensus Dividend Per Share is 2.54p. At my 73p Buy Price, this gives a Dividend Yield of 3.5%.
It is worth appreciating that these figures are before you strip Cash out from the Share Price - this would make the figures slightly more attractive.
From a quick look at the Forecast Numbers, it seems fair to say that Growth of about 15% per year is reasonable. This would put the Stock on a PEG (Price Earnings / Growth) Ratio of about 1.0 (usually anything below 1.0 is seen as Cheap).
So, from these Figures, TSTL does not look especially screaming Value. However, it is clearly not Expensive.
The ScreenShot below shows the ShareScope Details screen - the Forecast Consensus numbers are in the Top Right Hand Corner.
I see TSTL as very much a Long Term Growth Story and I expect to hold the Stock for many Years. In the Short Term, my expectation is that they will continue to deliver good results and the Market will award them with a Higher P/E Rating. In addition, I expect to see them beating Expectations as the Operational Gearing kicks in.
To give an indication of what this means, let’s assume the P/E Rating for Next Year (2016) rises to 18 - this would give a Target Price of 87p (4.83p x 18).
If we look at the Consensus Forecast EPS for 2017 of 5.83p and put it on a P/E of 15, we get a Target Price of 87p again. However, if we up the P/E to 18 as before, then the Target Price would be 105p.
It is not hard to see that in a few years, the Stock could be producing EPS of 8p and if we give that a Multiple of 18, we get a Target Price of 144p. OK, that is rather fanciful but there are two things to bear in mind here - firstly, I have not allowed for the Cash Pile and secondly, they have a habit of Beating Expectations. It might even be possible to see a P/E of 20 - this would mean a Target Price of 160p.
In addition, it is not hard to see a Dividend of 6p a Share (the Consensus Forecast for 2017 is 4.66p), which would give a Dividend Yield of 8.2% on the Price I paid of 73p.
Simon Thompson from Investors Chronicle recently commented on TSTL and has put a Target of 100p on it. He also suggests that Current Year Forecasts could be beaten and that the Company has a history of beating Forecasts. Many people have a dim view of Simon Thompson, but I find that apart from his Resources Junk and the Brain Fade he suffered over Chinese Stocks, he is actually very good when he sticks to simple UK Companies.
As ever, I will whizz through the usual Charts and Indicators.
On the Chart below, you should see a couple of years with a nice Uptrend and now a ‘Pennant’ kind of pattern. The hope here is that the Share Price can pop out of the Red Top Line (marked with the Green Arrow) and this would be a very Bullish event.
Dropping through the lower Black Line (marked with the Blue Arrow) would not be welcome. However, as a Long Term Investor, I will be sticking with it unless something goes horribly wrong in the Business itself.
It is pretty obvious that Infection Control in Healthcare environments (be it Human or Animal) is a major issue. TSTL seem to be creating a nice little niche and their Chlorine Dioxide based Products are clearly gaining wide Acceptance. With the well-publicised problems around overuse of Antibiotics, it seems a near certainty that Infection Control will be a big issue for many years to come. TSTL seems to play nicely into this larger Theme and there are few other Stocks that offer such Potential at this kind of Valuation.
The recent expansion of capacity at the Cambridge Plant is a clear sign that the Directors believe there is a growing Demand for their Products.
There is also a bit of potentially huge Upside from a possible move into the US. Management seem to give the impression that they would like to make the move at some point, but obviously it has massive Cost Implications due to the need to get the Products approved by the FDA (Food and Drugs Administration). In fact, they are already getting Enquiries from US Hospitals who would like to use their Products.
I think it is quite likely that they will get snapped up by a Larger Group - Infection Control is an area of extreme Political Importance and Big Players will be keen to get hold of a Leading Technology as it gains wider acceptance. Cambridge is a hotbed of Pharma and Biotech Groups and TSTL will be very well known within that Local Industry.
TSTL is clearly not screaming Value here but I think it is very much a Growth Story and certainly represents ‘Growth at a Reasonable Price’ (GARP). I think Patience will be required here but a Target of 100p should be fairly easy. In time, I expect 120p and more. In addition, I will pick up nice Dividends on the way. 120p would be 64% Upside on my recent 73p Buy Price.
Dobry wieczór, wd