Tristel (LSE: TSTL) manufactures infection prevention and contamination control products. Hospital and veterinary staff disinfect medical instruments and surfaces with Tristel’s formulations. Critical manufacturing environments, like clean rooms, control microbial contamination with Tristel’s offerings.
The active ingredient of the majority products is a proprietary formulation of chlorine dioxide. Other disinfectant agents make up just 14% of product revenues.
Chlorine dioxide’s use in the water treatment industry is longstanding. Tristel is, however, the only company worldwide to use chlorine dioxide chemistry for the disinfection of medical instruments. Chlorine dioxide is less corrosive than other disinfectants but has a higher capacity to destroy microorganisms, including the coronavirus.
Cleaning up
The global infection control market grows at around 1% on average each year. Tristel’s revenues have grown annually by 14% on average, showing that significant market share has been captured, which is consistent with the claim that chlorine dioxide is a superior disinfectant agent.
There is every indication that revenue growth will continue. Tristel is waiting for more product approvals in China. In France, Tristel is one of only three entities whose products meet new regulatory requirements for the disinfection of invasive ultrasound probes and stands to gain substantial revenue increases there.
New applications for the disinfectant use of chlorine dioxide are also being developed. These should work in tandem with geographical expansion to support Tristel’s revenue growth.
After-tax profits and earnings per share dipped in 2016 and 2018 due to higher taxes paid on those years, although the overall trend is up. Pre-tax profits, on the other hand, have increased over the last four years, from £2.55m in 2015 to £4.75m in 2019.
Dividends were covered 1.7 times by earnings for the 2019 financial year, suggesting they are sustainable. The interim dividend was just increased by 15% from 2.04p to 2.34p. If that growth translates to the final dividend as well, then the yield will be around 1.4% for the year based on a share price of 456p.
Healthy balance
A healthy balance sheet is a good thing. Tristel has nearly three times as much value in current assets as it does in current liabilities. This means liquidity is excellent with short-term obligations well covered by cash or close equivalents. Tristel has 34p of borrowings for every £1 in equity measured at the end of the last full fiscal year. Low debt means a clean long-term bill of health.
The company manufactures its chlorine dioxide-based products in Cambridgeshire by reacting a chlorine-containing salt with an acid. The company does state that it sources certain chemicals, parts, and equipment from overseas manufacturers.
It does not have significant exposure to supply chains in China, which have seen significant disruption from the novel coronavirus. Tristel has made arrangements to handle a no-deal Brexit. A logistics centre has been opened in and a notified body transferred to the EU. The latter act should help the company CE-mark its disinfectants and sell them within the EU unhindered.
Overall, Tristel is making significant gains in a large market with products that have a competitive edge. Although the markets, in general, are turning bearish at the moment, I believe Tristel’s shares should outperform. Its products are essential in healthcare settings where spending cutbacks are unlikely.
