Nanosonics hits record sales

Nanosonics' share price has jumped 9% after the company announced a strong first-quarter result with sales of $17.8m for the three months to 30 September – an increase of 18% compared to the prior quarter and more than double the equivalent quarter of 2015, where sales were $6.5m.

Management said market fundamentals continue to strengthen with Scottish regulators encouraging healthcare facilities to review current disinfection practices. ‘New guidelines from the NHS in England are pending and our expectation is that they will also reinforce the requirement for improved standards for disinfection,' said chief executive Michael Kavanagh.

There are now some 9,700 of the company's flagship trophon disinfection devices in use in North America – more than a 1,000 unit increase compared to the preceding quarter.

The growing installed base is important as the company follows a ‘razor and blade' business model. Customers buy a trophon unit for around $10,000; however, the real money as far as Nanosonics is concerned is in providing an ongoing supply of disinfectant cartridges to a locked-in customer. As the installed base grows, so too does the proportion of recurring sales from disinfectant cartridges and, with that, margins should improve too.

The stock has quadrupled since our initial upgrade in Nanosonics builds a better mousetrap from 10 Mar 14 (Speculative Buy – $0.785). This was a strong result but, being a small, one-product company, Nanosonics still has its share of risks. We continue to recommend gradually taking profits to ensure a maximum portfolio weighting of 2%. HOLD.

Note: The Intelligent Investor Growth Portfolio owns shares in Nanosonics. You can find out about investing directly in Intelligent Investor and InvestSMART portfolios by clicking here.

Disclosure: The author owns shares in Nanosonics.