The Nanosonics Ltd. (ASX: NAN) share price was one of the worst performers on the market during morning trade. In early trade the infection control specialists' shares were down as much as 19% to $2.41 following the release of its half-year results. They have since recovered slightly, but still sit deep in the red.
For the six months ended December 31, Nanosonics posted half-year profit after tax of $2.2 million on revenue of $30 million. This was a disappointing 90% and 17% decline, respectively, on the prior corresponding period. Diluted earnings per share came in at just 0.7 cents.
According to the release, sales were lower this half because the prior corresponding period included sales related to the build-up of inventory for its North American distribution partner GE Healthcare. One positive, though, was that the installed base of the trophon EPR product in North America increased by 1,700 units during the six months to 14,100 units.
Turning to the bottom line, the main reason profit was down significantly this half was that the prior corresponding period included an income tax benefit of $11.7 million. Whereas this year the company recorded an income tax expense of $1.5 million for the period. In addition to this, increased selling, general and administration (SGA) and R&D expenses also weighed heavily on its margins and offset improvements made in its gross margin.
The lift in SGA expenses was attributable to an increase in staffing costs as a result of its focus on growing and establishing the trophon EPR product as a standard of care in existing and new markets.
Outlook.
Management has not provided any formal guidance for the full-year but advised that it expects a similar level of growth in its North American installed base in the second-half.
Beyond FY 2018 the company expects strong growth in trophon EPR's installed base across all markets as new guidelines continue to be released. Furthermore, by FY 2020 management aims to have at least one other infection prevention solution product on the market, focused on currently unmet needs.
Should you invest?
Whilst I feel this result was quite disappointing, I think the market has overreacted to it. This could make it worth snapping up shares on today's weakness with a long-term view.
There's no doubting that trophon EPR is a quality product and if its future products are similarly successful, I believe the company could grow significantly in the future.
Overall, I continue to believe Nanosonics is one of the best buy and hold investments in the healthcare sector alongside CSL Limited (ASX: CSL) and Zenitas Healthcare Ltd (ASX: ZNT).
