Coloplast – COLOb
Coloplast is a global medical device company based in Humlebaek, Denmark. The firm designs, manufactures and markets care systems, disposable containment devices, paste, powder and seals. In its segment, it is a world leader. It operates in four segments: Ostomy Care (42% of sales), Continence Care (35% of sales), Urology Care (9% of sales) and Wound & Skin Care (14% of sales). About 72% of the sales occur in Europe, some 17% in the Americas (South and North), and 11% in the rest of the world.
The company has a number of patent protections for its products, giving it ample room to maneuver in the market. In the past, it has regularly introduced new and innovative products for the ostomy care segment on a regular basis, which has translated into steady market share expansion. Furthermore, given the good relationships it has with its intermediaries who guide end users towards certain brands, the small amount of competition which does exist in its market is well-controlled.
In 2008, the company undertook a cost-cutting program. A major part of its production centers were shifted into emerging regions such as Eastern Europe (Hungary) and South East Asia (China). The company now enjoys good margin growth figures, and based on its historical figures, further revenue growth of around 6% to 7% can be expected. The cost-cutting efforts should also translate into an average EPS growth of 13% for the next 3 years.
In a more recent move, Coloplast decided to return excess cash to shareholders via half yearly dividends. The current payout ratio is at 90%, translating into a sustainable dividend yield in the region of 4.5%. Finally, the company may buy back up to DKK 500 million shares per year, part of which will be offset by stock issuance to employees.
Strengths and weaknesses analysis / Fundamental analysis:
Strengths:
- Coloplast operates in a niche market,
- It focuses on organic growth rather than growth through acquisitions,
- The company is facing some litigation in relation to one of its mesh products. Historically litigation cases in the Medtech sector have been awarded damages of around USD 150k per case which given the current company position is affordable.
Weaknesses:
- However, the mesh litigation could result in some serious long-term financial issues for the company,
- Increases in raw material costs (e.g. a sharp increase in the oil price) would cause a dramatic impact on Coloplast’s operating margins as higher costs cannot passed on,
- Increased competition and bad relationship management could cause a decrease in sales.
Company profile, investment opportunity and asset management integration:
| Metric | Rating |
| Operational risks: | Above average |
| Expected growth: | Average |
| Long term value creation: | Average |
| Positive competitive advantage: | Average |
| Management excellence: | Average |
| Financial strength: | Average |
| Investment orientation: | Group “Best-in-Class”: Healthcare, Growth, Emerging Market Exposure |
Price ranges:
| Buy: | Only forcustomers |
| Sell | Only forcustomers |
| Stop-loss: | Only forcustomers |
| Fair-value: | Only forcustomers |