SomnoMed: Result 2014
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Europe is sleeping a little more soundly this year thanks to a small Australian company called SomnoMed. We introduced the company with a positive recommendation in SomnoMed: A future mini-ResMed? on 5 Feb 14 (Speculative Buy - $1.33). The review laid out the big-picture for the business, which treats sleep apnoea through the manufacture of custom-made oral appliances (fancy mouthguards). The company’s recent full-year results showed that the case remains on track.
Unit sales in Europe exploded by 41% while sales in the larger US market grew by 12%, though the rate was 18% in the second half and management expects to maintain a pace closer to that mark for the coming year. Several European markets are embracing this kind of treatment as a first line, compared to Australia and the US where the first line is continuous positive airway pressure (CPAP) treatments from the likes of ResMed and Fisher & Paykel Healthcare (see Shoptalk).
| Somnomed's mouth guards are usually replaced every 3-5 years, but for those that grind their teeth (a condition known as bruxism) it might be closer to 2.5-3 years. Though the costs are comparable over the long term with CPAP treatments, the competitive edge (vis-a-vis CPAP) is in compliance (fewer people stop using oral appliances than CPAP over time) and portability. But they only really compete in moderate sleep apnoea cases - CPAP wins severe cases hands down. |
In Sweden, more than half of all new patients are now treated with oral appliances rather than CPAP machines. And Holland is heading in that direction, too (45% this year, up from 35% last year). Overall this year revenue rose by 40% to $26m, helped along by a softer Australian dollar (overall unit sales were up 21% for the year).
Management expects unit sales of 55,000 for the coming year (up 27%) with revenue of $32.5m (up 25%). Our expectations are a little more modest (management has a history of slightly over-promising) but this remains a company growing at more than 20% per year, which is a rare beast in a sputtering first-world global economy. SomnoMed is currently expanding into new markets including Italy, the UK, Spain, Portugal and Korea.
SomnoMed shares are up 13% since SomnoMed SPP on 4 Aug 14 (Hold - $1.67) and we’ve raised our recommendation guide slightly given the company’s continued business success. HOLD.
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