SomnoMed: Result 2015

SomnoMed set new sales records in all its geographic regions during the 2015 financial year, with revenue increasing 24% in the US, 17% in Europe and 14% in Australia/Pacific. Management noted a 'positive shift' in insurance reimbursement after new contracts were signed in the US, Holland and Germany.

The strong performances was despite some European markets experiencing delays in the regulatory approval process and cold weather closing dental practices, where the company's flagship product – SomnoDent – is fitted. The company also entered six new markets during the year: the UK, Finland, Ireland, Italy, Spain and Portugal. Europe now accounts for 36% of sales.

Asian markets saw particularly robust growth, with a 31% increase in sales in Japan, 34% in South Korea and 35% in South East Asia. 'The expansion of our product line, combined with the geographic expansion which took place over the last two years, has proven to be successful,' management said.

All up, the company sold a total of 51,355 units throughout the year, up 18% compared to 2014. In anticipation of future growth, it's increasing capacity at its main factory to accommodate production of 100,000 units.

Earnings before interest, tax, depreciation and amortisation (EBITDA) fell 17% and was blamed on the European weather disruption and significant increases in marketing and admin expenses.

'Over the last two years executives and staff employed in marketing & sales departments in our regions grew from just 17 people to 48. This expansion is now complete with future growth in volume and revenues expected to grow at a significantly greater rate than the sales & marketing and other administration and corporate expenses,' management said.

With this in mind, it's no surprise management has forecast a four-fold increase in EBITDA to $3m in 2016, along with a 20% increase in units sold and 22% increase in revenue to $42m. SomnoMed finished the year with $8.3m in the bank, which should be plenty for it to fund its expansion throughout 2016.

As with medical device maker Nanosonics, SomnoMed's rapid growth makes it more difficult to value than more predictable businesses. We've left our Sell price high to ensure we maintain a stake should the company continue to achieve impressive growth; however, we highly recommend locking in profits (if and) as the share price rises – and note our 2% maximum portfolio limit – to ensure you take something away should things not go to plan.  

The share price has risen 12% since SomnoMed sets new targets from 11 Jun 15 (Hold – $2.44) and is up 103% since we upgraded the stock in SomnoMed: A future mini-ResMed? on 5 Feb 14 (Speculative Buy – $1.33). HOLD.