25 May 2012

DoH boosts Deltex

06/12/2011 Miles Nolan

Shares in Deltex Medical (DEMG) have soared by 44 per cent on the back of a Department of Heath (DoH) report which is expected to boost its business.

The DoH has published a note that suggests the NHS is failing to take advantage of new technologies, as a result, for those that fail to embrace new ideas, it intends to issue a compliance penalty of 2.5 per cent of hospital revenues from April 2013. Highlighting a number of 'high impact' areas, the key benefit to Deltex will be in its fluid management technology - this is the only product recommended by Nice in its guidance earlier this year.

It suggests that less than 10 per cent of the 800,000 applicable patients are monitored in this way, but with full adoption it could generate net savings of over £400 million a year. AIM listed Deltex sells its CardioQ monitor to hospitals for £11,500, this is used in conjunction with a disposable probe which is high margin and sells for £70 a time.

Deltex estimates there are 2,500 operating theatres in the UK, so far it has sold 500 of its machines. The latest DoH report will hopefully focus the mind of NHS hospitals and the need to seriously consider its technology. With the UK its most developed market this should lead to a knock-on effect overseas as it chases more business.

House broker has factored in little for the likely increase in demand but forecast 2012 sales of £9 million, pre-tax profits of £300,000 and EPS of 0.2p. Speaking to Growth Company Investor chief executive Ewan Phillips said 'the news is very positive for Deltex and provides a strong motive for buyers to look at our product.'

There is plenty of spare capacity to manufacture its products in Chichester, though the likely impact is likely to be seen in the second half of 2012 onwards. At 25p, the shares have reacted well, but at current levels the price is about right.

Tags: AIM market, Cost savings, Department of Health, Growth company, NHS

Sector: Health Care Equipment & Services

Companies: Deltex Medical

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