Nanosonics: Q3 result 2016

This maker of sterilisation equipment has posted another record quarter.

Nanosonics has announced a fairly run-of-the-mill quarterly result – growth, growth and more growth.

The company recorded revenue of $12.1m for the three months to 31 March, an increase of 33% compared to the previous quarter and triple the same period last year – though this was a low base as the company transitioned to a direct sales distribution model in the US, which temporarily reduced sales.

This level of quarter-on-quarter growth is encouraging and is starting to ease our fears that the switch to a direct sales model, rather than working with GE Healthcare as a distributor, would throw a spanner in the works.

The company now has more than 7,700 trophon units installed in North America, a 1,000 unit increase on the prior quarter. The installed base is a figure we watch closely as it supports sales of high-margin disinfection cartridges.

Management attributed the strong sales result to more favourable market conditions and increasing awareness of the company’s disinfection device. New guidelines from the UK healthcare regulator are to be released within the next few months and the company has a growing pipeline of orders in anticipation of more stringent requirements for the disinfection of ultrasound probes.

Nanosonics has $44m of cash in the bank, an increase of $1.5m on the prior quarter, which is more than enough to cover its expenditure needs as it grows.

Our original investment case in Nanosonics builds a better mousetrap from 10 Mar 14 (Speculative Buy – $0.785) continues to go to plan. However, with the share price up 187% since then, we highly recommend gradually taking profits and keeping a close eye on our maximum portfolio limit of 2%. Though this is another pleasing result, it is important to remember that Nanosonics is still a one-product company in its infancy, and that makes it very risky. 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.