AMS enjoyed a spectacular growth phase between 2010 to 2020 when it came unstuck due to covid, competition catching up and major cost pressures in US ( c. 32% of sales), where there is a sustained effort from the government to lower healthcare costs across the board. So in FY to 31/12/23 sales still rose 2% to £126.2 mil but net profits fell almost 22% to £15.8 mil with fully diluted & clean EPS of 7.25 ( adj eps 9.39 ). The fall in profitability being inflicted by the US markets where they lost a v high royalty stream from Organogenesis ( the US regulator excluded their product from reimbursements) and reorganization of sales channels for Liquiband, their best seller. AMS sell their products direct into hospitals or via distributors either own branded or white label. Looks like AMS are focusing more on direct and branded sales in US where they had to build their own distribution center and hold its own stock as opposed to selling it to a distributor first. This has obviously impacted margins and profitability but the big positive is that EU and ROW organic sales of Liquiband grew by 11% and 28% respectively. The rest of the portfolio also enjoyed decent organic growth.
It’s very likely that the multi year earning dip has troughed in 2023, and AMS are at a major inflection point, esp after they announced their biggest acquisition ever made, Peters Surgical. It looks a very good fit, diversifying them further away from the US and into complementary kit which will position AMS as a major, most complete and diverse global supplier of speciality wound care products. The financial impact is not immediate, though. And this is possibly why the markets reacted with a c 20% drop in the sp since the announcement. Although Peters Surgical had rev of £72 mil and EBITDA of c. £9 mil in 2023, the co guided the acq to be earnings neutral in 2024 as it will complete end of June, and possibly to account for the cost involved ( the income from the acq will be spent on making the acq). But from 2025 this will add at least £70 mil rev and “high single digit “ earnings accretion, quoting the co, so I’m assuming plus c 8% to eps. This looks a bit low but the co says that full benefits will be felt from FY 2026. This is partly explained by the change from net £60mil cash position to c. £60 mil net debt. Interest earned on cash becomes payable on debt, so that will affect the bottom line in the short term.
Even so, I think there is scope for upgrades from now on, absent of any other nasty surprises from US. Before the results and acq were announced, brokers forecasts were: 2024 Rev £139 mil , PBT £26.2 mil and clean EPS of 9.5 (adjusted will be higher) 2025 Rev £149 mil, PBT £29.8 mil and clean EPS of 10.4 On the day of results Numis upgraded from buy to add with a price target of 250p and Panmure Gordon from hold to buy with a pt of 225p (Source: MarketScreener)
Surely the acquisition will better those forecasts and lead to more upgrades, even if not immediately. I averaged down and AMS is now my largest holding , will hold for the mid-long term though and I will just ignore the short term volatility.