Shares digital

Recovery will be a long time coming for orthopaedic device manufacturer

by Rachel Robson

An uncertain outlook and interim results below analyst forecasts mean shares in orthopaedic device manufacturer Corin (CRG) are unlikely to recover quickly from their 78% slide over the past year.

The shares, currently at 138.5p, lost over a fifth of their value in May alone after the company warned revenues from its US business this year were unlikely to be more than £10 million. The caution came after Corin’s US distribution partner Stryker reduced its anticipated purchasing requirements of Cormet instrumentation and implants for the current financial year.

Although sales for the six months ending 30 June were in line with forecasts at £22.9 million, up 69% from the year before, adjusted pre-tax profit of £3.7 million was lower than broker Landsbanki’s estimate of £4.3 million.

This was due to higher-than-expected costs and a number of one-off charges. An exceptional charge of £1.9 million was the result of a failed acquisition and costs related to the group’s strategic review. As part of this review, a number of older and non-core products will be rationalised over the next 12 months. This is expected to only have a small impact on sales, but there will be a significant write-down against slow-moving stock.

Corin continues to believe Stryker is unlikely to re-order stock before the fourth quarter, and although it expects to have sales in the final period, there is no certainty any additional sales will be recorded in 2008.

In addition, while the company expects implantations to grow strongly in 2009, sales of Cormet to Stryker are expected to be lower in 2009 than in the current year. Landsbanki’s Elizabeth Klein says this implies ‘turnover of no more than around £39 million in FY2009... a reduction in our turnover estimate of around £5 million to £6 million for the period.’ Investec’s Sebastien Jantet, meanwhile, says he expects to be putting through downgrades to his 2008 and 2009 forecasts, with 2008 pre-tax profits ‘likely to move to around £4.8 million, giving a new EPS of 7.8p, a downgrade of around 5%’. Jantet has set a price target of 120p.

Shares says: The outlook is too uncertain and the shares are likely to continue to disappoint. Avoid