Can you tell us about the company?
FPH is a medical device company that specialises in the design, manufacturing and marketing of products used in respiratory care, acute care and the treatment of obstructive sleep apnoea (OSA). FPH entered this market in 1971 with a respiratory humidifier system used in critical care. Since then the company has expanded its product offering across both hospital and home care environment. The company now sells into over 120 countries to home care providers and hospitals, as well as to other medical device manufacturers.
What do you like about it?
We are impressed by FPH’s commitment to maintaining its dominance in respiratory and acute market and in particular in humidification space, through ongoing investment into research and development. FPH allocates approximately 10% of its revenue to research and development and recently launched products, as well as ongoing efforts to expand their use through further clinical trials, clearly demonstrating FPH’s strategy to grow through product innovation.
We are particularly excited about Optiflow, FPH’s new humidification system that delivers high flow of humidified air/oxygen mixtures to spontaneously breathing patients via a nasal cannula. Most competing products in this space are legacy, low-flow machines that deliver cold air and require full face masks and are as such less convenient for patients.
As such, we believe that FPH will be able to carve out a significant market share position with Optiflow.
Apart from Optiflow FPH is also launching a number of other products that will support the company’s strong growth rate over the short to medium term.
How long have you held FPH?
We initiated our position in FPH in February 2016, having followed the company for a while. After a number of very strong results, the company’s share price and 12 month forward PE multiple appreciated significantly, increasing from approximately 20x to mid-30x. Hence, we waited to initiate our position until we gained confidence that there was further valuation upside even at such high multiples. We now believe that the company will be able to deliver further growth supported by its strong product pipeline.
How is it better than its competitors?
FPH was the first company to develop a humidification system and has since remained committed to investing into this segment to remain ahead of the competition. The new product suite in this space clearly demonstrates that FPH is committed to stay ahead of its competitors.
What do you like about its management?
The majority of FPH’s senior management have been with the company for at least two decades. The longevity of the senior team demonstrates that the company’s senior management is committed to long-term research and development projects needed to deliver leading products/technology and therefore growth through product innovation.
What is your target price on FPH?
Our short-term target price for FPH is A$9.50 based on our 12-month forward EPS (earnings-per-share) estimate. There’s upside risk to our valuation from further expansion of the company’s addressable market, which would result in a material upward revision of our EPS forecasts. We believe the stock can continue to trade in the 30x to 35x 12-month forward PE range for the foreseeable future, as long as the corporate strategy remains intact.
At what point would you sell it?
We do not expect to sell FPH in the short-term as we believe the company is just starting its next phase of growth supported by a suite of new products and as such will continue to deliver impressive revenue and earnings growth for the next few years.
How much has it added (subtracted) to your overall portfolio over the last 12 months?
FPH has contributed only 1 basis point to our performance in the last month that we have owned it but the company is still to report its result.
Is it a liquid stock?
FPH is a reasonably liquid stock with $1.4 million worth of shares traded daily. There is only one significant shareholder with ~25% ownership.
Fisher & Paykel Healthcare (FPH)
[1]Jelena Stevanovic is an equities analyst with Platypus Asset Management.
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