Here’s why the Nanosonics share price is taking a steep dive today

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The Nanosonics Ltd (ASX: NAN) share price is under pressure today following the release of the company’s full-year results for the financial year ending 30 June 2020 (FY20).

At the time of writing, the Nanosonics share price is trading at $6.28, down 8.59% from yesterday’s market close. At ringing bell, the Nanosonics share price plummeted by more than 17% to as low as $5.86 per share.

FY20 highlights

The medical device company reported a mixed result for its full-year earnings. Nanosonics recorded $100.1 million in revenue, up 19% on the prior corresponding period. Across all key geographical segments, revenue in North America was its strongest market, up 18% to $90.2 million, making up more than 90% of the entire group revenue.

Net profit after tax stood at $10.1 million, a decline of 26% largely due to Q4 impacts.

Earnings before interest and tax (EBIT) came in at $11.6 million, a 25% fall from FY19 results.

Nanosonics’ cash flow for the year ending was at $20.9 million, up from $2.6 million driven by increased customer receipts. The company recorded a strong net cash position of $91.8 million with negligible debt.

No dividend was declared for the full year. The company advised it will focus its efforts on pursing and investing in opportunities due to the increasing global spotlight on infection prevention.

COVID-19 impact

Nanosonics advised it saw a COVID-19-related impact on its Q4 FY20 sales, with revenue only increasing by 1% compared to the prior corresponding period. The first three quarters recorded a 26% increase.

Installed base growth also fell 46% during Q4, but was up 13% for the entire FY20.

While the COVID-19 pandemic has reinforced the importance of infection prevention, Nanosonics also outlined its business strategy to invest in product expansion into new markets, with over $15.6 million directed across a number of projects.

Business outlook

Nanosonics did not provide any guidance in respect to FY21, due to the ongoing uncertainties associated with COVID-19. The emergence of future waves and potential further lockdowns are expected to complicate financial forecasts.

The company’s strategic priorities continue to be focused on establishing its trophon product to be installed across all regions. However, it is anticipated that trophon capital sales will be impacted in the first half of the year by limited hospital access, particularly in North America.

A flow-on effect on the capital equipment requirements in Nanosonics’ main North America distribution partner, GE Healthcare, may also reduce sales of trophon.

Thus far, global sales of consumables to end customers have regained approximately 80% of Q1 to Q3 levels. It is predicted that the volume of ultrasound procedures and consumable sales will continue to recover later in the year.

Total operating expenses for FY21 are expected to be in the range of $75–$78 million.

Management commentary

Commenting on Nanosonics’ FY20 results, CEO and president Michael Kavanagh said:

The 2020 financial year has been another year of significant achievement and progress with many important milestones achieved against our strategic growth agenda. Excellent growth momentum was experienced in the first three quarters of the year demonstrating the underlying strong fundamentals for the business.

As expected, the implications of the COVID-19 pandemic impacted the momentum primarily in Q4 which saw the planned adoption of trophon being delayed in hospitals as their focus turned to the management of COVID-19.

Looking forward, he added:

The COVID-19 pandemic has reinforced the importance of infection prevention and given increased prominence to this important topic, not just amongst the medical community but in all communities. The Company considers that this can only be positive for the longer term fundamentals of the business.

About the Nanosonics share price

The Nanosonics share price reached a low of $4.01 in March, a discount of 36% on today’s price. Today, the Nanosonics share price is down by 1% since the start of 2020.

The post Here’s why the Nanosonics share price is taking a steep dive today appeared first on Motley Fool Australia.

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Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Nanosonics Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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James Mickleboro
James Mickleboro studied economics in the United Kingdom before coming to Australia and landing a job at a fund manager. He is part of the CFA Institute's Chartered Financial Analyst program. He loves researching and writing about Australian equities.