Three UK healthcare and healthcare equipment companies on my radar

The UK is good at healthcare: here are three healthcare and healthcare equipment companies worthy of consideration by investors.

Article updated: 3 July 2020 10:00am Author: Michael Baxter

As a general rule, I think the product is the most important consideration when investing in a company. Sure the share price, P/E ratio and balance sheet are all important, but what is the company’s core product? Is it scalable? How significant is the company’s expertise? And how might demand for this product change over time?

There is an obvious reason, plus, for my money, a more important reason to look at healthcare.

The obvious reason is demographics. As populations age, demand for healthcare related products increases.

The more important reason, in my opinion, is that technology advances are creating remarkable new treatments, and potential cures.

Here I confess to a slight disappointment. Despite the extraordinary opportunity created by technologies such as CRISPR/cas 9, which entails editing of DNA, genome sequencing and AI, I find a dearth of UK companies listed on the stock market in these areas.

All I can say to investors is watch these technologies, to invest in them you might want to consider funds. Of course, these are high risk areas, too.

But there are some UK companies in healthcare with some exciting products. None of the companies I am looking at here are low risk, bear that in mind.

Medica Group

Medica is a provider of radiology reporting.

Here is the obvious puzzle. Shares in Medica Group have been in steady decline since the 2017 IPO. At the beginning of this year, they were down by roughly a third from the IPO price. Since then they have fallen by another 15% or so.

Yet, both revenue and profits have been increasing at an impressive rate over the same time frame. Revenue has more than doubled since 2015, up by more than a third since IPO, whilst profits before tax has risen at a similar rate.

As for this year, the company has been hit by Covid-19, due to hospitals focusing on the virus but it’s costs are largely variable and it has a strong balance sheet.

What I do like about this company, however, is its use of AI and digital technologies.  Radiologists can apply its technology to interpret medical images remotely. It is investing heavily in AI, or augmented intelligence, as the company prefers to call it. The technology could be transformative in this area, supporting radiologists interpreting data for example and in cross sectional imaging. 

This is a company that seems well placed as the market it operates in develops.

Tristel

Tristel is a manufacturer of infection control, contamination control and hygiene products.

Shares are up 10% this year and are up four-fold since 2015.

The company has developed chlorine dioxide technology. And the market is expected to boom

The company’s revenue increased 18% over the last 12-months and pre-tax profits jumped 19%. Significantly, overseas sales increased 26%. With encouraging signs coming from France and Germany, Tristel shares may be worth considering.

Instem

Instem’s customers are drug makers, and it sells software. But at heart, its product offering is about data. Its technology captures, analyses, reports on and submits high quality regulatory data. AI is fundamental to this.

It has been migrating customers away from software that customers install on site to software available over the cloud — software as a service (SaaS).

There is always a cash flow challenge that results from this process. It means providers of the software make less money in the short term, but theoretically more in the long term.

Despite this, in the year ending 31st December 2019, revenue was up 13%, software as a service sales were up 16%, recurring revenue jumped 9%.

But it is still not profitable. The company has announced a £15.75 million fund raising via a new share placing.

The money raised “will be used to accelerate the group’s acquisition strategy with a number of potential compelling opportunities for bolt on acquisitions and more substantial targets having been identified.”

Shares in Instem have doubled since 2015.

I like the company’s product offering. This is a long-term investment, but I expect share price volatility in the shorter-term.

An investment in this company is risky, but I do think it has strong potential.


These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees

Michael Baxter portrait photo
Michael Baxter

Economics Commentator

Michael is an economics, investment and technology writer, known for his entertaining style. He has previously been a full-time investor, founder of a technology company which was floated on the NASDAQ, and a director of a PR company specialising in IT.

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