Nanosonics/NAN

NAN is in the benchmark, a pathology sterilisation company.

The market was looking for >$92m of sales in the 1H, and an NPAT of ~$7m.

So quite a large downgrade to consensus, based on the trading update released overnight.

We watch NAN because it is in the benchmark, and because it’s been fascinating to see such a dramatic valuation attached to the business model.

Like many of its medtech brethren, NAN has traded well over 10x revenues, for much of the past few years. Even if one disagreed with the idea of 10x revenues as being a bit rich, one can at least agree to lump it into the “concept stock” camp, whereby if it executes, the sky is the limit on sales, but if it doesn’t, the basement.

We’ve been of the view that NAN’s c40% share of the US market, whilst impressive, still only translated to a mildly profitable business at the group level, which makes it hard to justify the overall market cap, and implies similarly perfect execution everywhere else, which is simply hard to do.

In any case, the old “aftermarket” trading update will be met poorly at market open.

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