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How well is Tecan Group positioned versus healthcare peers?

How well is Tecan Group positioned versus healthcare peers?

Tecan Group’s [SIX:TECN] CEO Dr Achim von Leoprechting hosted a capital markets day in Switzerland last week in which he sounded a cautious note for investors. He said that 2024 had been “more challenging” for the healthcare company, but still feels that Tecan provides a valuable opportunity for shareholders to benefit from future market growth.

“Tecan operates in an industry poised for notable future growth, and we’re uniquely positioned within this, offering a full range of products and services that meet and anticipate customer needs,” Dr von Leoprechting said.

Tecan’s investors are not happy however: despite its best efforts, the company’s stock price has dropped on the SIX in Switzerland by almost a third in the last six months. Tecan shares are now priced at less than they were five years ago. The PE ratio is currently around 28x.

At the capital markets day Tecan reaffirmed its mid-term financial outlook, expecting to continue to outperform the average growth rate of the underlying end markets in normal market conditions, while at the same time further expanding profitability.

Key strategic growth drivers for the company include commercial expansion through an increased footprint and channels in key regions, as well as Tecan’s primary capital deployment strategy of further inorganic expansion through M&A.

Tecan is addressing the high growth segments of the genomics, cell and tissue, and proteomics markets, with products that unlock bottlenecks in key workflows to accelerate reliable, scalable processes and deliver reproducible results.

Through its partnering business, Tecan is also involved in the fast-growing segments of the medtech market, such as soft tissue and orthopaedic robotic surgery, as well as products for cardiovascular applications.

How does Tecan compare with its healthcare sector peers?

Tecan has argued that its demonstrated track record of above-market growth, margin expansion, strong cash conversion, and CAPEX-light requirements, have created a healthy basis from which to continue pursuing an accretive M&A strategy. Supported by a range of strategic growth drivers, Tecan says it anticipates returning to average organic growth rates in the mid to high single-digit percentage range in local currencies under normal market conditions.

Tecan’s latest financial results rank the company within the mean of the healthcare sector. It’s worth noting that Tecan demonstrated relatively strong performance in net capital expenditure, but underperformed the sector when it came to net change in cash. Historically, mixed results in these metrics has not demonstrated a strong correlation of a stock outperforming its competitors. In light of Tecan’s recent financial performance, it’s unlikely that the company’s stock will substantially outperform the industry benchmark.

Tecan Group - Healthcare Peers

Source: Bridgewise

Tecan’s revised full year outlook

Based on the financial results from the first half of the year, Tecan has revised its full-year outlook. This revision is also due to the anticipation that weaker demand, driven by general market weakness, will persist longer than originally expected, while the new China stimulus program is likely to have a meaningful impact only from 2025.

The company now expects full-year 2024 sales in local currencies to range from on prior-year level to a decrease in the mid single-digit percentage range (previously expected to increase in the low single-digit percentage range in local currencies).

Is the stock a buy yet? Tecan has plenty of potential upside, but it is by no means the best bet in the Swiss healthcare sector. It is currently difficult to call the turnaround on a stock which has plunged through levels last seen before the pandemic.

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