Tristel

Shares in decontamination experts Tristel (TSTL) have almost halved from a year ago, which is largely as a result of a scaling back of profit forecasts due to its expansion efforts.

Tristel has doubled manufacturing capacity at its Cambridge site, and has also built a new clean room. Finance director Liz Dixon admits 'its been a year of spend'. Indeed, a recruitment drive has pushed headcount up by 30 people to 90, with new sales, marketing and production specialists joining. This investment, though a positive step, has swelled the annual cost base to nearer £5.8m, from £3.8m in 2010.

In the year to June, sales rose 6% to £9.3m, however the pre-tax profit line slumped 70% to £508,000. As expected, the endoscopy disinfectant business is falling as equipment manufacturers work harder on forcing clients to use their own products.

Tristel manufactures a range of high-performance disinfectants, however it has recently assembled products under the brand of Crystel, which encompass third party products from pharmaceutical and personal care companies. With global appeal for these high margin products, Tristel should be well placed as it already sells into 24 countries via distributors.

Direct sales into China have proved a slow burn, however brokers expect revenues of £78,000 in 2010/11 to be nearer £600,000 next year. Progress in Germany is also looking good, as is Australia and New Zealand. Recently appointed non-executive Chris Samler was a former CEO of Weston Medical, so brings good experience - particularly as the challenge for Tristel is to broaden its customer base.

Broker finnCap expects 2012 to be second-half weighted, with annual pre-tax profits of £1m, and adjusted EPS of 3p in prospect. Current trading is ahead of management expectations, but for now, as Tristel fills its capacity, we rate the shares as a hold.