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Surgical Innovations

  • BY: Andrew Hore |
  • POSTED: 19/04/2013 |

Surgical instruments manufacturer Surgical Innovations found 2012 tough and its profit slipped but in 2013 the company should start to move forward again thanks to its investment in product development.

In 2012, revenues edged ahead from £7.6m to £7.64m but this masks strong growth in own-brand sales, which improved by 13%. This meant that gross margins improved. Underlying pre-tax profit fell from 1.71m to £1.53m, even if the £294,000 of exceptional restructuring costs are excluded. 

Net debt was £2.63m at the end of 2012, which was more than double the level 12 months earlier. 

Cash will be required to finance the move to larger premises but Surgical Innovations has already secured a grant of up to £5.05m from the regional Growth Fund to help finance this. The capital spending needs to start before the end of 2015.

Net debt is expected to fall to £2.13m at the end of 2013 but this does not take into account any significant capital spending on tangible assets. The debt is expected to reduce even though capitalised development spending net of amortisation will be £1.2m.

Recent product launches will help 2013 revenues to improve. Demand from the NHS, which is a market that is notoriously difficult to get accepted in, is even starting to grow. SI brand sales are expected to be more than four-fifths of 2013 revenues. 

A recovery in profit to £1.75m is forecast for 2013. The shares are trading on around 14 times prospective 2013 earnings, which is not high for a business with a strong range of niche products.

At 5.38p a share, Surgical Innovations is valued at £21.8m. The share price has recovered since the 2012 figures were published but it is still much lower than one year ago. The decline in the share price could make the company more vulnerable to a bid from a larger competitor but this would be a shame given that the benefits of the development spending have yet to be fully realised.

Download the latest AIM Journal from http://www.hubinvest.com/AIMPDFApril2013_43.pdf

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