Synergy Health (LON:SYR) (1037p and 3.7% of JIC Portfolio) has issued its Q3 trading statement this morning covering the period since 30th September 2012. In all honesty it is a bit of a mixed bag. Underlying revenue was up 17.4% to £273m driven principally by its two sterilisation businesses, AST and HST where underlying growth was 18% and 11.4% respectively. Poor performances came from the Dutch linen business where severe price competition is leading to lower margins. Management is taking action to "extract Synergy from the price war with a change of strategy". It is removing excess capacity and also withdrawing further price discounts; it is to be hoped that this works.
The Americas is Synergy's highest growth region with AST growing turnover by 19.1%. Americas is becoming increasingly important, representing c.20% of total group turnover following the acquisition of Surgical Express (SRI) last July. Management are upbeat on SRI, anticipating margins approaching 10% by the year end and also optimistic of converting its current "bid book" into new business. Bids valued at $25m per annum are being decided in the coming months.
Conclusion: the market's reaction to today's results has so far been a little disappointing, (off 4.6% as I write) but perhaps understandable. Management are upbeat about prospects but are having to work hard to maintain margins "over the next two quarters, where revenues will fall short of our original plan". Management expect earnings to be within the range of market forecasts; so no upgrades and I suspect that some forecasts at the higher end will slip back. Clearly there is not much room for manoeuvre. The share price is now off some 8% from its January highs and at 1037p is valued at 16x April 2013 forecast earnings for 28% growth and 14.3x April 2014 earnings for 12% growth. As I said last week, that does not seem to me to be overly expensive. If all this sounds as if I am prevaricating a bit it is because I am! Not easy this one; would I buy it if I did not already own it? Probably not. I will watch over the next few days.
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