Shares for the future: an uncommonly profitable company
This is a unique business meeting a genuine need, which means it makes lots of money and can consistently grow profits. Analyst Richard Beddard gives his opinion.
13th December 2024 15:09
by Richard Beddard from interactive investor
With more hindsight, we may look back on the year to June 2024 as a critical one for Tristel (LSE:TSTL).
During 2024, the company made its first sales in the US, the world’s biggest market for hospital disinfectant. And it was the year Tristel recruited a new chief executive to replace its founder, Paul Swinney.
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Swinney saw the potential in a common chemical, used to treat water, to disinfect medical instruments. That chemical was chlorine dioxide, and 30 years later, Tristel is still the only company making hospital disinfectant from it.
Scoring Tristel: TSTL
Unique companies meeting a genuine need tend to be uncommonly profitable, and Tristel fits the template.
The Past (dependable) [3]
- Profitable growth: Double-digit revenue and profit CAGR [1]
- Strong finances: Minimal net financial obligations [1]
- Through thick and thin: Lowest ROC 15% (2022) [1]
It has achieved double-digit growth in revenue and profit over the past decade without recourse to debt. In 2024, it exceeded its long-term growth rates.
Profitability and growth wavered somewhat during the pandemic when hospitals panic-bought disinfectant, shut down the outpatient clinics Tristel mostly supplies, and were left with more disinfectant than they needed.
But even in its worst year, 2022, Tristel achieved a 15% return on capital (ROC). In more normal conditions, shareholders have come to expect 20% or more.
This reliable earning stream is a function of the products. Disinfectant is a consumable, used whenever a doctor, nurse, ophthalmologist, or speech therapist conducts a procedure with small heat-sensitive devices like many endoscopes.
The Present (distinctive) [2.5]
- Discernible business: Makes a unique hospital disinfectant [1]
- With experienced people: New chief executive, experienced chief financial officer [1]
- That creates value for customers: Efficient high-level disinfection at modest cost [1]
Uniquely, chlorine dioxide is a high-level disinfectant (it kills microbes and their spores) that can be applied by hand, using a wipe.
Traditional methods of disinfectant require heat treatment, which is not suitable for delicate instruments, other high-level disinfectants like peracetic acid and hydrogen peroxide, which are more dangerous to handle and consequently restricted to expensive and remote washing machines, or lower level disinfectant such as bleach, which kill fewer microbes.
Tristel’s unique selling points are that its products are cheaper, quicker or more effective than the alternatives.
Although chlorine dioxide is a common chemical and consequently not patentable, Tristel has more than a hundred patents protecting the way chlorine dioxide is packaged and delivered, and the process of verifying that it is applied correctly.
Patents and the cost of trials to secure regulatory approval in dozens of territories, and device approvals for thousands of devices, has successfully deterred copycats.
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Tristel has grown the market for high-level manual decontamination itself, initially in the UK, then in Europe and the Asia-Pacific region, growing the proportion of revenue earned abroad to more than 60% in recent years.
The company’s biggest revenue earner is Trio, a three-step pre-wetted wipe system for cleaning, disinfecting and rinsing medical instruments such as endoscopes. It is used in departments like cardiology and ENT (Ear, Nose and Throat).
The next biggest revenue earner is Duo, a foam disinfectant applied with a dry wipe. It is a single-step process for disinfecting simpler ultrasound probes and devices used in ophthalmology procedures such as cataract surgery and glaucoma diagnosis.
Trio earns more revenue because it is more expensive than Duo, and that is because it does more, enough to satisfy the stringent cleaning requirements typical of instruments such as endoscopes that enter body cavities.
New chief executive Matt Sassonne joined Tristel after the year-end in September. The other executive director is Liz Dixon, who joined in 2007 and has been chief financial officer since 2010.
The Future (directed) [2]
- Addressing challenges:Sustainability, mature UK market [1]
- With coherent actions: New products, international growth [0.5]
- That reward all stakeholders fairly: Does not disclose employee turnover, executive remuneration? [0.5]
Overseas growth is critical because Tristel does not expect to grow rapidly in the UK where it already dominates.
This is why news that the lengthy process to achieve US Food and Drug Authority approval for Tristel ULT (Ultrasound) was so significant, and why the approval for Tristel OPH (Ophthalmology), which is expected soon, is too.
The US is potentially Tristel’s biggest market, and it is hitherto untapped. Today, the Ultrasound market there is worth about $100 million, according to Tristel, and it is dominated by Trophon devices, which bathe ultrasound probes in a mist of hydrogen peroxide.
As it often does, Tristel has entered the market with a local partner. Parker Laboratories is manufacturing and distributing Tristel ULT in the US supported by a small Tristel office in Boston, but it is experiencing more “purchasing bureaucracy” than anticipated.
In 2024, Tristel earned just $74,000 revenue from Tristel ULT, because of the time it is taking to persuade clinics and hospitals to trial and then adopt a new product. As hospitals are often part of larger groups, it expects selling to become easier once it has gained toeholds in these groups.
Given the product’s unique qualities and track record of international growth, Tristel’s prospects in the US look good.
But Tristel ULT and Tristel OPH are Duo products, which makes me wonder about the future of Trio, Tristel’s biggest revenue earner.
Pre-wetted wipes, like those used in Trio, contain plastic to maintain their integrity and elongate their shelf life. This creates waste, which is bad for the environment.
Duo uses dry wipes, which contain no plastic waste. This is also a feature of Cache, Tristel’s newish range of surface disinfectants, a second revenue stream that earned Tristel 8% of revenue in 2024.
Tristel says it is focusing research and development on waste management, which may imply Trio’s environmental performance needs to be improved.
Revenue from Cache did not appreciably grow in 2024. Here too, Tristel is trying to establish a new market, hoping that Covid has demonstrated the need for a high-level surface disinfectant.
Patience may be all that is required. Towards the end of the financial year, Tristel achieved approval in the UK and EU for TANK, a system for distributing concentrated Cache disinfectant and diluting and storing it in reusable bottles at the point of use.
The one red flag in my statistical dashboard for Tristel is the 2% Compound Annual Growth Rate (CAGR) in the share count over the last decade. This has fed into the company’s generous, but somewhat unpredictable, share option scheme.
The company says it is considering a new scheme. Hopefully it will not use the company’s volatile share price to determine executive pay, as it has in the past.
The price (discounted?) [-2.1]
- No. A share price of 383p values the enterprise at about £183 million, 33 times normalised profit.
A score of 5.4 out of 10 implies Tristel may be a good long-term investment. The main detractor is the share price.
It is ranked 36 out of 40 shares in my Decision Engine.
20 Shares for the future
Here is the ranked list of Decision Engine shares. I review the scores at least once a year, soon after each company has published its annual report. The price scores are calculated using the share price prior to publication.
Generally, I consider shares that score 7 or more out of 10 to be good value. Shares that score 5 or 6 out of 10 are probably fairly priced.
Focusrite (LSE:TUNE) has published its annual report and is due to be re-scored.
0 | Company | * | Description | Score |
1 | Manufactures tableware for restaurants and eateries | 10.0 | ||
2 | Imports and distributes timber and timber products | 9.0 | ||
3 | Supplies kitchens to small builders | 8.8 | ||
4 | Manufactures pushbuttons and other components for lifts and ATMs | 8.5 | ||
5 | Manufactures computers, battery packs, radios. Distributes components | 8.4 | ||
6 | Distributor of protective packaging | 8.4 | ||
7 | Makes light fittings for commercial and public buildings, roads, and tunnels | 8.3 | ||
8 | Manufacturer of scientific equipment for industry and academia | 8.0 | ||
9 | Manufactures filters and filtration systems for fluids and molten metals | 7.6 | ||
10 | Sells hardware and software to businesses and the public sector | 7.6 | ||
11 | Designs recording equipment, loudspeakers, and instruments for musicians | 7.5 | ||
12 | Manufactures surgical adhesives, sutures, fixation devices and dressings | 7.5 | ||
13 | Manufactures PEEK, a tough, light and easy to manipulate polymer | 7.5 | ||
14 | Flies holidaymakers to Europe, sells package holidays | 7.5 | ||
15 | Manufactures/retails Warhammer models, licences stories/characters | 7.5 | ||
16 | Whiz bang manufacturer of automated machine tools and robots | 7.4 | ||
17 | Distributes essential everyday items consumed by organisations | 7.2 | ||
18 | Sources, processes and develops flavours esp. for soft drinks | 7.1 | ||
19 | Sells promotional materials like branded mugs and tee shirts direct | 7.1 | ||
20 | Translates documents and localises software and content for businesses | 7.0 | ||
21 | Manufactures natural animal feed additives | 6.9 | ||
22 | Online retailer of domestic appliances and TVs | 6.9 | ||
23 | Online marketplace for motor vehicles | 6.9 | ||
24 | Manufactures vinyl flooring for commercial and public spaces | 6.8 | ||
25 | Repair and maintenance of rail, road, water, nuclear infrastructure | 6.7 | ||
26 | Manufactures military technology, does research and consultancy | 6.4 | ||
27 | Supplies vehicle tracking systems to small fleets and insurers | 6.4 | ||
28 | Operates tenpin bowling and indoor crazy golf centres | 6.4 | ||
29 | Retails clothes and homewares | 6.4 | ||
30 | Surveys and distributes public opinion online | 6.3 | ||
31 | Acquires and operates small scientific instrument manufacturers | 6.2 | ||
32 | Casts and machines steel. Processes minerals for casting jewellery, tyres | 5.9 | ||
33 | Publishes books, and digital collections for academics and professionals | 5.9 | ||
34 | Manufactures power adapters for industrial and healthcare equipment | 5.5 | ||
35 | Manufactures sports watches and instrumentation | 5.5 | ||
36 | Tristel | Manufactures disinfectants for simple medical instruments and surfaces | 5.4 | |
37 | Makes marketing and fraud prevention software, sells it as a service | 4.9 | ||
38 | Runs a network of self-employed lawyers | 4.6 | ||
39 | Develops and manufactures hygiene, baby, and beauty brands | 4.4 | ||
40 | Manufactures specialist paper, packaging and high-tech materials | 3.7 |
Scores and stats: Richard Beddard. Data: SharePad and annual reports
Click on a share's name to see a breakdown of the score (scores may have changed due to movements in share price)
Shares marked with an asterisk (*) have been re-scored, click the asterisk to find out why.
Richard Beddard is a freelance contributor and not a direct employee of interactive investor.
Richard owns many shares in the Decision Engine. He weights his portfolio so it owns bigger holdings in the higher-scoring shares.
See our guide to the Decision Engine and the Share Sleuth Portfolio for more information.
Contact Richard Beddard by email: richard@beddard.net or on Twitter: @RichardBeddard
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