Surgical Innovations

HOLD

15/09/2011 Miles Nolan

Having more than doubled in price this year, shares in medical devices specialist Surgical Innovations (SUN) recently slipped on news of reduced interim results.

Last year it benefited from a £637,000 lumpy order in its industrial arm, but with no chunky order to replace it and lower OEM sales, the revenue line dipped 10% to £3.2m in the six months to June. The pre-tax profit line fell 38% to £474,000 due to a hike in operating expenses.

But that's the bad news. On the plus side, Surgical is generally weighted towards the second half so remains on track to deliver market expectations of a £1.8m profit for 2011, producing EPS of 0.6p.

Surgical has shifted the bulk of its manufacturing from overseas back to its Leeds-based premises and product development is being stepped up; indeed, seven innovations are in the pipeline. Trading in more than 40 countries, it has secured new distribution contracts in Saudi Arabia and Australasia.

Progress in the US – the world's largest market for its products – has also been good. Surgical has developed a new product branded as Pretzel-Flex, which is an advanced reusable retractor used by surgeons to reposition large organs such as the liver in order to get access to other organs during operations.

With increasing obesity a big problem, the fact that there are more than 250,000 operations every year in the US should present a huge market. Surgical has also signed a deal with AIM rival Advanced Medical Solutions to develop and supply a novel device for the internal application of adhesives and sealants.

Surgical spent £1.36m on manufacturing and R&D, and it is developing a 3mm instrument range. In an interview with Growth Company Investor, chairman Doug Liversidge CBE said, 'Our product range has never been stronger, and with our order book strong we view the future with confidence.'

We highlighted the attractions of the shares at 6.6p this February, so the rise since is encouraging. Hold on.