Coloplast delivered strong fiscal second-quarter performance that was generally consistent with our expectations. Our incremental adjustments to assumptions were immaterial to our valuation, and we're standing behind our DKK 535 fair value estimate. With quarterly organic top-line growth running at 7%, Coloplast posted another period of consistent growth that closes matches its general pattern of 6%-8% revenue growth. We see no reason to alter our narrow economic moat rating.
Coloplast's impressive record of innovation helped set the stage for another quarter of gains. The new SenSura Mio product line and SpeediCath compact catheters helped boost ostomy and continence care growth to 7% and 9%, respectively. Urology was the weakest area in the second quarter thanks to soft demand for vaginal slings and penile implants. We expect Coloplast will refocus on penile implants now that Boston Scientific will soon close on its purchase of the men's urology business from Endo Pharmaceuticals. We anticipate Boston will devote considerably more resources to selling the implant product line than Endo had.
With favorable currency tailwinds, Coloplast benefited on the bottom line, though we expect this will eventually ease. We are confident that the firm can meet our margin projections, as it recently expanded its manufacturing capacity in Hungary and will shift over more production from higher-cost facilities in France and Denmark. In the past, Coloplast was hemmed into the lower-tech areas of wound care because it lacked negative-pressure wound therapy technology. But the alliance with Devon Medical and its Extricare NPWT system, which started in 2014, has already come to a close. Due to ongoing safety issues with Extricare, Coloplast will no longer be distributing the system in non-U.S. markets and will need to find a new partner. This could take some time, as the NPWT field is fairly consolidated.
Fair Value Estimate Changes
- Coloplast A/S COLO|DK
- Morningstar Rating: 3
- Market Price: 515.00 DKK
- Fair Value: 535 DKK (Was 480 in 2014)
- P/FV: 0.96
- Economic Moat: Narrow
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