Nanosonics Ltd (ASX: NAN) has released a business update to the market, in light of COVID-19. Unaudited sales in this third quarter were significantly up on the prior corresponding period, reflecting underlying growth momentum for the business. The Consumables segment has performed up to pre-COVID-19 expectations, however the impact on the fourth quarter is uncertain. This uncertainty is largely because the company’s sales team is unable to directly access relevant people in various hospitals, which is understandable given the trying time healthcare professionals are undergoing at the moment. NAN has established digital communication as well that its staff is engaging in to compensate. The business also notes the timeline for adoption of planned new capital equipment may be extended by some hospitals, thereby resulting in lower installed base growth for NAN. In an attempt to cushion this impact, NAN is implementing programs to support emergency and ICU departments where ultrasound is used and Trophon remains relevant.

In the most recent results announcement, NAN broke tradition and noted the FY20 profit phasing will be more balanced between 1H and 2H (before, 2H would be stronger) – this implies second half net profit guidance of $5.7m. Following the announcement today, we believe NAN may not be able to meet this guidance, despite the business highlighting that the impact of COVID-19 on earnings is uncertain. That being said, the fundamentals remain strong and we could see a surge in demand for Trophon as hospitals globally will aim to invest capital to improve their services post-CODIV-19 to be better prepared (especially Europe).

To us, the business still remains relatively fundamentally sound. The share price has seen a v-shaped recovery following the early March sell-off, as did most Healthcare stocks on the ASX. However, we would remain cautious because the complete impact of the outbreak has not been ascertained as of yet.

 


 

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April 3, 2020