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Deltex Medical Group plc: THE INVESTMENT CASE

Deltex's US arm ready to lead as 30 hospitals sign up

Deltex’s overseas sales are booming but its previously dominant NHS revenues are dropping off
Deltex's US arm ready to lead as 30 hospitals sign up
Getting the patient home quicker is crucial says Deltex

On the surface not much changed at Deltex Medical Group PLC (LON:DEMG) in 2016.

Sales were £6.3mln, down from £6.4mln, but the bare numbers tell only part of the story. 

The split between the UK and elsewhere neatly illustrates what is happening beneath the surface at the blood monitoring systems group.

Overseas sales boom while UK lags 

In a nutshell, while Deltex’s overseas sales are booming, its previously dominant NHS revenues are dropping off equally as fast.

But encouragingly, revenue from its blood flow monitoring probes started to rise again in the second half of 2016.

Income from probes (used in patients in surgery or recovery) rose 4% over the year to £5.4mln and by 10% to £3.1mln in the second half.

The AIM-listed group now has hit its target of placing its oesophageal Doppler monitoring (ODM) equipment in thirty major US hospitals after two more in the north east of the country signed up.

Deltex’s main customer remains the NHS but it has had to find new markets due to the cash crisis that has affected the health service in recent years.

The differing fortunes of the UK and US markets are why sales have been flat recently.

US sales rose by 40% to £1.9mln in 2016 and were 50% higher in the second half thanks to the weaker pound.

The order run rate going into 2017 is also 50% higher, the company said.

Sales in the US now match those of the UK, where revenues dropped 26%.

International sales rose by 20% to £1.7mln led by France and Scandinavia.  

Nigel Keen, chairman, said: “Growing sales traction in the USA, our main focus market, and in other International markets, together with success in stabilising our UK business mean that our core revenue stream of high margin disposable probe sales has returned to growth in the second half.”

This sales traction was improving Deltex’s operating and cash performance, he added. 

US closing in on cash generation

Previously, Deltex had said that if it can reach usage of 1,500 probes monthly in the US it breaks-even on a cash basis.

As the aim is for each hospital in the US to use 100 probes on average per month, simple maths would suggest that now with 30 major hospitals signed up that total should be achievable very soon.

Throw in good growth in France, which is the second largest market for Deltex’s probes, and Sweden and this should be a good small cap growth story.

UK to remain a challenge 

The UK, though, is still a core market and trading continues to be a challenge.

That is despite heaps of evidence that monitoring blood flows during and immediately after surgery enables patients to leave hospital quicker and with fewer post-op complications, saving the NHS time and money.

So, for now, the emphasis is on the US and overseas markets.

All of the heavy spending in terms of the start-up in the US has now been completed and further research showing the benefit of haemodynamic monitoring may in time spark a recovery in NHS buying.


-- update for January 2017 trading statement --

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