Healthcare

Report by Iron Blue Financials

Following publication of the company's FY25 annual report, Iron Blue increases their CTEC score to 29/60 (newly top decile). They see upside risk to the group’s future D&A expense given FY25 PPE/RoU capex exceeded depreciation by a 10-year high 33% of PBT adj and balance sheet intangible assets under construction (historically mainly software) almost trebled Y/Y. Risks in CTEC’s debtor book may be emerging with year-end debtors overdue by >90 days but not impaired increasing to $31m from $8m despite FY25’s rise in provisioning expense. Inventory impairment provisioning remained compressed and CTEC continued its trend of stripping out restructuring and other costs. FY25’s trade payables spiked higher, bringing risk of mean reversion. They also note that both the CEO and CFO were internal appointments.

Healthcare

Report by Iron Blue Financials

Following publication of its FY24 annual report, Iron Blue increases their CTEC score to 28/60 (top quartile / fertile grounds for shorting). Reductions in inventory & bad debtor impairment provisioning contributed 36% of FY24’s Y/Y rise in PBT adj while the trend of restructuring and asset impairment provisions strip outs continued. The gap between PPE/software capex and the P&L D&A charge narrowed Y/Y but remained elevated at 16% of PBT adj. Receivables factoring increased to $43m (FY23: $27m, FY22: nil) while working capital days outstanding compressed to a decade low 47 days (FY23: 57), implying risk of future mean reversion. CTEC lowered the discount rate used to impairment test its goodwill to a blended 10.3% from 13.3% in FY23. This is now below the 11.5% average for Iron Blue’s coverage universe.

Report by Willis Welby

The Willis Welby team revisits their review of UK growth names they put in place at the start of 2023. They have 104 stocks in their UK coverage with market caps north of USD 2.5bn. Nineteen of them make their screen of consensus Y3 revenue growth in excess of 6%, reasonable financial productivity, and an implied Y3 EBITM ratio of less than 110. The performance of this approach has been okay since May 20, with the mean move of the 18 names at -0.8%, which is ahead of the -2.1% return from the FTSE 350. The team remains of the view that the UK has plenty of interesting and growing businesses. And enough of those names are still available at attractive prices, including the likes of Sage, Convatec and IHG.

Report by Copley Fund Research

Healthcare now stands as the third largest underweight risk to UK investors (behind Consumer Staples and Energy) driven by two key factors: 1) AstraZeneca positioning. The net underweight of -2.62% accounts for more than the net underweight of -2.36% for the entire sector. Overweights in Smith & Nephew, ConvaTec and out-of-benchmark Sanofi provide the partial offset. 2) Value Fund positioning. Active UK Value managers are seemingly happy to let underweights increase, with a huge gap of -6.27% vs. the FTSE All Share weight. Value managers are banking on some serious underperformance.