ConvaTec shares slump after 'disappointing' results

ConvaTec shares plummeted on Thursday after the company reported a “disappointing” fall in profits and unveiled a new plan to turn around its fortunes.

Full-year earnings before interest and tax fell 6% $429.4m.

“These are disappointing results, in light of our revenue and margin guidance at the beginning of 2018,” the company said. “We did not deliver our original targets for revenue growth and operational improvements in 2018 due to poor execution.”

The company said its new turnaround plan would see an investment of around $150m over three years, which it aimed to recoup within two to three years.

ConvaTec said around 30% of the investment would be capital expenditure, with the rest earmarked for restructuring, project management and other transformation costs.

The company issued a profit warning last October which saw the departure of the chief executive. It was now focusing on products and market segments that offer the best returns, develop a strong pipeline of new products and simplify its business.

Convatec forecast operating profit margin of 18-20% for fiscal 2019, including transformation plan costs and lower than the 23.4% for 2018.

The company said prepared for the impact of a no-deal Brexit, including repositioning stock.

“It is reasonable to expect that there shall be delays at the custom borders into and out of the UK on and after 29 March 2019 for a limited period,” the company said.

“We have assessed the potential impact of such delays on our supply chain and have put in place mitigation plans, including reviewing inventory and appropriate stock positioning.”

“We recognise that there remains significant uncertainty around the eventual Brexit outcome. However, based on our understanding today we do not believe that Brexit will generate unmanageable risks for our business.”

Despite the share price fall, analysts at Numis said they regarded this as "an attractive entry point with the shares back to 10x after downgrades with upside as performance in various divisions improves".

"We continue to view Convatec as attractively priced in the early stages of a turn-around for a business that offers attractive cash flow."