Can this anti-snoring mouthguard make Somnomed the next Resmed?
Health & Biotech
Health & Biotech
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Don’t get enough sleep? Tired of your partner snoring all night, keeping you awake?
Sleep apnea is often the cause and local outfit Resmed has prospered mightily as a result.
Worth more than $13 billion, Resmed (ASX:RMD) has emerged as one of the biggest local medtech groups which is showing robust growth globally.
The problem is, many who are advised to use Resmed’s “Continuous Positive Airways Pressure” (or CPAP) facial masks and air pumps give up.
CPAP devices treat apnea by pumping pressurised air through a mask to keep the throat open while asleep.
The expense — and non compliance — has opened the door for the likes of Somnomed (ASX:SOM), which has built a solid business supplying mouth guards which are cheaper and can be just as effective as the gear supplied by the likes of Resmed.
With revenues running at around $50 million and gross margins of close to 60 per cent, Somnomed has built a tidy business over the past decade or so, and is tipping ongoing buoyant revenue growth.
But it has taken three iterations of the business to get where it is now and while shareholders have had a buoyant share price over the past few years to help them keep the faith, there is ongoing wariness until it demonstrates a clear path to steady earnings growth.
Even so, investors have responded positively to its most recent earnings, with the shares ahead more than 10 per cent this week alone.
Somnomed began selling its novel mouth pieces via dentists, who fitted the devices. But to drive sales, Somnomed refocused on doctors who prescribe the mouth guard to patients.
That shift has worked, up to a point. Now, Somnomed is rolling out sleep clinics in the US as it targets the much bigger ‘sleep solutions’ market.
It has a new chief executive, Derek Smith, in place to drive the new push. Smith replaced chairman Peter Neustadt who ran the company for several years as it shifted its sales effort, first away from dentists and now towards sleep centres.
Smith, who was installed in mid-2016, has flagged core Somnomed revenue growth of 15 per cent this year and, more importantly, operating profit growth of 60 per cent to more than $10 million.
Add in the sleep centres and revenue should grow a more robust 60 per cent to $75-80 million.
The focus for investors is how the business case for the sleeping centres plays out, and just how long it will take for this new initiative to emerge as an earnings driver.
Somnomed shares closed at $3.55 on Friday, valuing the company at $205 million. Its shares have traded between $2.84 and $4.08 over the past year.
Somnomed has been contacted for comment.