12 Stocks of Christmas: Tristel
Although Tristel (LON:TSTL) has undoubtedly been one of Aim’s more successful companies, it has underwhelmed of late.
The share price peaked at 640p in 2021 amid optimism for its expansion into the US. In 2023, the required regulatory approval came through, providing another surge of demand for the shares. But as 2024 comes to a close, Tristel still hasn’t quite managed to crack the biggest of global healthcare markets.
Tristel is a global leader in infection prevention in hospitals. It is the creator and owner of the chlorine dioxide infection prevention cleaner, which it has used to create products to disinfect medical devices. More recently, the chemical medley has also been used in a new suite of products for surface disinfection sold under the brand name Cache.
Tristel’s chlorine dioxide is the gold standard for device decontamination in the UK and, as such, the company has nearly 100% market share. Still, UK sales rose 31% in the 2024 financial year to £16.2m, driven largely by price rises.
In total, the company generates sales from 61 countries. It operates its own subsidiaries in 16 countries and sells via national distributors in another 45. Management says geographic expansion is key to the company’s growth. In 2024, international sales contributed 61% of the group total, which is pretty much flat on where the company was five years ago. Gaining regulatory approval in new countries is one thing, but generating sales there is proving to be somewhat more challenging.
Could 2025 be the year of international sales success?
International growth, especially in the US, will be key to the ongoing success at Tristel and I have some optimism that new chief executive Matt Sassone will be a key figure here. He took over from the company’s founder in September this year, the second time he has taken over the running of an Aim listed company from an outgoing founder.
Sassone previously led LidCo until its acquisition by US group Massimo in 2021. He then remained as a senior vice president in the enlarged company, based in California. I am hopeful that his knowledge of the US medical device market will provide some assistance to the company’s US expansion plight.
Justifying the share price
Tristel shares have always been quite expensive and even after a disappointing year, they’re still trading on 23 times forecast earnings.
But there is an argument to be made that the company’s quality and earnings potential justifies this. Tristel’s incredibly sticky customers mean the company doesn’t have to work very hard to maintain sales. Cost of sales are pretty low and gross margins tend to exceed 80%. The company’s operating margins are also expanding and net profits are rising at a slightly faster rate than sales.
Tristel is also incredibly cash generative - consistently converting well over 100% of operating profits into operating cash flows. Capital expenditures always exceed depreciation, showing the company is investing sensibly in future growth. Free cash flows have been rising, giving the company comfortable headroom to pay a decent dividend, which is currently yielding just under 4%.
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6 comments
When you discuss individual stocks of 12 please list all 12 or tell me how to see the stocks already discussed as I have missed a couple
A list of companies covered so far is in this post: https://www.stockopedia.com/co...
All the hallmarks of a quality compounding share . I worry less about the high price with these sorts of shares. "But there is an argument to be made that the company’s quality and earnings potential justifies this", I agree. There is also an argument that on a dividend yield and free cash based valuation it is actually quite cheap, regardless. (Earnings and sales based valuations less value). It is noticeable that rising ROCE and operating profit are leading to rising net asset value over time. Fundamental quality hallmarks for a compounder noted by Roland Head. A strong moat with a leading product. Some trouble during the pandemic period but I think that is largely over. I like this share. Interesting that it is also held by the brilliant Rosemary Banyard in her Downing opportunities fund. An endorsement by a fund manager I respect. A brilliant summary by Megan of where I see this share albeit with the risk that the geographical runway is not so fruitful.
I bought in October as well. It just seemed very reasonable value for the growth and cash generation relative to the sector. And the obstacles in making headway stateside just underline the power of moats in its application area.
Very on target topic for me Megan. Thanks. (LON:TSTL) Tristel is my largest holding so I play close attention to it and listen to the all the Shareholder updates. Yes, it is pricey, but much cheaper than it was. The big takeaway for me from the last update was US sales are slow but this was down to bureaucratic delays rather than deals not being done.
"In the USA, we have continued winning accounts and onboarding new customers, although Tristel ULT's year-to-date sales growth has been below expectations. This is primarily due to the stringent purchasing bureaucracy of signing up new healthcare accounts, alongside the time taken to train sales reps with the Company's longstanding partner Parker Laboratories. We are pleased that customer feedback is encouraging, and the sales pipeline remains robust as Parker continues to optimise the Company's go-to-market strategy. We remain confident of the opportunities available to Tristel in the US as we continue to gain traction in the largest healthcare market in the world.
I bought a little position back in October, buying the dip, as it were. It seemed like a nice high-quality company,
Maybe all these hurdles are a good thing anyway, as it discourages competitors.