• Change in policy and ensuing ordering patterns expected to result in $18-23m loss for FTSE 250 medical company
• Challenging markets in advanced wound care division also continuing to act as drag leading to drop in full year expectations
• We recommend Convatec as a ‘hold’ for higher risk investors

Medical products group Convatec today issued a profits warning and announced that its chief executive would be stepping down with immediate effect.

In a third quarter update, the company said a change in inventory policy and expected ordering patterns by the largest customer of its infusion devices business would result in a reduction in revenue of $18-23m. This, along with challenging markets in its advanced wound care division, would mean that full year revenue growth would be flat to 1.0% compared to the 2.5% to 3.0% guidance given previously. In turn, that had led to a drop in the expectations for the full-year profit margin. On top of this, the company announced that CEO Paul Moraviec would be leaving, citing retirement, to be replaced on an interim basis by non-executive director Rick Anderson.

This is a lot of unexpected news for the market today and, unsurprisingly, the shares have responded with a sharp 27% fall. While three of the company’s four divisions saw revenue growth in the third quarter, the fact that the company is now looking for a new CEO and faces other challenges means that investors should expect the shares to remain volatile for some time to come. As such we have moved our recommendation to a ‘hold’ for investors willing to accept a higher level of risk.

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