Wednesday 14 September 2011

Surgical Innovations

Those of you who take a peek at my blog on a regular basis will be aware that until relatively recently I was a shareholder in a company called Surgical Innovations. I bought shares in SUN for just below 2p and sold them for over 10p, crystallizing a fivefold profit in just over a year.

Whilst I could and can see a very bright future for this company, I was more than happy with my gains, and stated at the time that whilst I could see potential upside in the SP over the medium to long term, I felt it unlikely that the SP would multi-bag again in such a short time period.

Surgical Innovations released their interim results today, and there is nothing in the report that would lead me to change my mind.

The shares took a hit today and are now trading below my sell price. On the face of it, the results are disappointing with both revenues and operating profits falling against the comparable period last year. However, a one-off industrial contract did flatter last year’s figures, and there has been a temporary reduction in OEM orders due to the phasing of larger orders. This largely masks an excellent 29% revenue increase in SI branded products, and an impressive 7% improvement in margins. Basic earnings per share at the interim stage are 0.12p.

The company is confident that growth prospects will be achieved in 2012 and 2013, and current trading is encouraging with strong customer demand.

Previous broker forecasts for 2011 are for an EPS of 0.6p. Given the improvement in margins, and the expected progress in the second half, this doesn’t look too outlandish. This gives a forward P/E ratio of 17.5 (SP 10.5p at time of writing). The market capitalization is about £40m with a NAV of approximately £11m. Revenues at the interims came in at £3.2m with a profit before tax of £474,000.

Great little company, great prospects for growth going forward, but at this stage in its development it looks fairly priced to me.

As I mentioned in a previous blog, Surgical Innovations will remain on my monitor, and I may reconsider buying again on any significant SP weakness.






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