Interactive Investor

Insider: bargain hunting at two of AIM’s struggling stars

25th October 2021 10:00

Graeme Evans from interactive investor

These stocks have been hugely popular in the past, and a piece of bad luck could be an opportunity, reckon bosses.

Three directors at award-winning AIM stock Tristel (LSE:TSTL) have spent £78,000 backing a revival for the infection prevention business after Covid-19 derailed its long growth record.

Tristel was 2020's AIM Growth Business of the Year in recognition of its turnover and profit progress since floating in 2005, a record that also saw a steady improvement in its dividend.

Annual results published last Monday showed a pause in its momentum, after the pandemic caused hospitals worldwide to curtail the number of patient examinations that use the medical devices that Tristel's products disinfect.

After seven years of continuous revenue growth, the Cambridgeshire-based firm reported that sales fell 2% to £31 million in the year to 30 June as earnings per share declined 44% to 6.39p.

Patient examinations in most of its markets are now increasing, while the NHS has almost used up the stock of products it purchased in late 2020 to safeguard against a disorderly Brexit.

Chief executive Paul Swinney said: “We are confident that we will re-boot our progress this year as hospitals worldwide return to pre-pandemic levels of patient examinations.”

He supported these comments with the acquisition of shares later that day worth £19,700 before doing so again on Thursday afternoon with a further purchase totalling £14,475.

Chief financial officer Liz Dixon also bought shares on Monday worth £37,750 and non-executive David Orr picked up £6,000 worth of stock. The trio bought at prices of between 482.5p and 492.5p, with Swinney's second purchase likely to have been a factor in Tristel's shares closing the week at 500p after a gain of 3% on Friday.

Tristel shares accelerated from 250p at the start of 2019 and reached 675p in April of this year, only to fall sharply after a profits warning that month, as medical device disinfectant sales in the UK declined 14% across the financial year to June.

Tristel's products are geared towards hospital departments that carry out diagnostic procedures with small heat-sensitive instruments. These include the nasendoscope used in ear, nose and throat departments, as well as the cardio echo probes in the diagnosis of heart disease.

In these areas, Tristel believes its chlorine dioxide-based products offer the simplest, quickest, and most affordable high-performance disinfection method: “In geographical markets in which we have been present for some time, we hold a truly significant market share,” it added.

The company's Cache surface disinfection business generated 13% of overall sales in the last financial year and looks well placed as the legacy of Covid-19 should be that hospitals are more rigorous in their selection of products.

Tristel is also stepping up overseas expansion after gaining regulatory approval for its medical disinfection product Duo in India, South Korea and Canada. In the US, Tristel said it continued to make progress towards approval for Duo's use in ultrasound.

Analysts at broker finnCap also regard a decision by the company to discontinue a range of low margin, non-chlorine dioxide-based products early next year as a strategic positive.

They left their target price unchanged at 550p after the results, adding that this valuation potentially excludes the full value of the company's opportunity in the US.

Bargain hunting at ASOS

More ASOS (LSE:ASC) directors have bought the company's shares in the wake of the profits warning and departure of chief executive Nick Beighton earlier this month.

The shares plunged 13% to 2,408p on the day of the annual results, prompting chairman Ian Dyson and Beighton himself to increase their holdings in the aftermath of the sell-off.

They were followed last Monday by chief operating officer Mat Dunn, who bought £100,000 worth of shares at a price of 2,387p. Dunn will lead the business while the ASOS board looks for a successor to Beighton, who had been in the top job for six years.

The latest ASOS purchase came on Wednesday when non-executive director Eugenia Ulasewicz bought shares worth almost £13,000 at a price of 2,539p.

By the end of last week, ASOS shares had recovered to 2,760p but are still 15% lower over the past month and 42% cheaper across the year to date.

ASOS warned in the results that profits for this year would be significantly short of expectations due to “notable headwinds” such as shipping disruption and rising labour and freight costs.

On Wednesday, analysts at Deutsche Bank kept their “buy” recommendation but slashed their price target by a quarter to 4,000p.

They added: “We still like the ASOS business but can see further selling pressure given the lack of earnings catalysts in the next six to 12 months.”

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