Premium content from Motley Fool Hidden Winners UK
Our monthly Best Buys Now are designed to highlight our team’s three favourite, most timely Buys from our growing list of small-cap recommendations, to help Fools build out their stock portfolios.
“Best Buys Now” Pick #1:
Tristel (LSE:TSTL)
Why we like it: “Tristel (LSE: TSTL), is an innovative healthcare firm based in Cambridge. Its unique disinfectant products are high-margin, quick to deploy, and cost effective. The recent regulatory approval for its DUO ultrasound product in the US has seen it enter the world’s largest ultrasound market – a significant opportunity long in the making. Encouragingly, it has already onboarded a growing number of hospital customers in the US.“The company has also received regulatory approval in Canada for a high-level disinfectant for ultrasound probes, bolstering its North American growth prospects. We hope that Tristel can build on its recent progress and eventually take a position as global market leader. The opportunity for investors in the firm is that Tristel’s top-line growth accelerates and its profitability increases as royalties from the product rollout in North America come on stream.”
Why we like it now: Tristel’s partnered with a US partner, Parker Laboratories, to manufacture and sell its Tristel ULT high level disinfection product to US hospitals. Tristel will receive a royalty on sales of 24%, which will produce lower revenues than selling direct, but with no direct costs meaning sales largely translate into operating profit. So far, commercial progress has been limited, with royalty income in the US of just £108k in the latest fiscal year partly due to ‘complex purchasing pathways’. However, the opportunity could be huge, given Tristel estimates an addressable market of $150m. Tristel says it has engaged with roughly 200 health systems with adoption ‘steadily building’ as Parker leverages its nationwide salesforce and distribution network. With Tristel also receiving FDA clearance earlier this year for a high-level disinfectant for ophthalmic instruments – Tristel OPH. The total market opportunity for Tristel OPH is around $32m per year. Tristel’s confident North America will make a ‘meaningful contribution to Group revenues over the coming years’. While investors await news of further progress in North America, the offers a trailing yield of 3.9% supported by strong cash generation.
