Nanosonics (ASX:NAN): A disinfection company turning itself around and has gained 50% so far in 2025

Nanosonics (ASX:NAN) was in the best space to be during the pandemic – disinfection technology. Its flagship Trophon machines are electron paramagnetic resonance (EPR) devices aimed to reduce cross contamination in hospitals and other healthcare settings, particularly through ultrasound probes which have conventionally been hand-wiped.

Source: Company

The company has over 30,000 of these deployed worldwide and it makes money not just from the big machines, but consumables and spare parts. What was not to like?

Not as easy as Nanosonics shareholders would’ve thought

We mentioned above that disinfection technology generally was in demand due to the pandemic. That was true, but for Nanosonics, it was more complicated than that. Even though there was demand for machines during the pandemic, BD wasn’t as easy without access to hospitals, not to mention supply chain issues. Heck, its pre-tax profit for the 6 months to December 31, 2020, was just $0.2m (down 97%) and its revenue was just $43.1m.

Shares had a better 2021 as business development activities picked up, but have not reached those levels since. Obviously, investors took their money out of disinfection technology stocks (Zoonoo is another case in point) and the retirement of founder and long-time executive Maurie Stang in mid-2022 did not help.

One of the worst days in the company’s listed history occurred in January 2024 when it gave a bad trading update due to customers delaying upgrades to newer Trophon devices and staying with their existing editions. Although the total installed base was 3.4% higher, the new installed base was down 13.4% and upgrades were down 22.5%. Revenues were $79.6m, down 2.4%; operating costs were $60.8m, up 12%; and the company anticipated a pre-tax profit of $4.9m, compared with $11.4m in the prior corresponding period.

One thing to consider as well is that Nanosonics is also preoccupied rolling out a second product – Coris, an endoscope reprocessing platform. It has taken longer than expected to bring it to market. There is a big market for this, as there are over 60 million flexible endoscope procedures conducted across the Western countries Coris is targeting and 270,000 ultrasound units in North America alone. Right now, the FDA is considering the case for it.

Things are improving

A year on, and investors embraced the Nanosonics’ results for the first half of FY25. Shares are up over 50% this year, and it is still only late February. The company temporarily reduced manufacturing to reduce inventory and it was able to sell device upgrades.

It delivered $93.6m in revenue, up 18% from 12 months ago. Total installed units are 35,840 and 1,730 were installed over the second half. Its operating profit more than doubled with $10.9m left after tax and expenses. Best of all, it upgraded its full-year guidance for 11-14% revenue growth, up from 8-12% previously. It expects a gross margin between 78% and 79%, although operating expenses will grow 8-10%. As always, it is subject to macroeconomic and political uncertainty.

What is more is that Nanosonics has told investors that Coris could be launched in 12 months from now although likely in Europe first because it could do so without FDA approval.

But it might not be time to buy right now

We think Nanosonics is one to watch, but not one to buy right now. We are dissuaded by its high multiples – 49.9x EV/EBITDA, 79.1x P/E and 1.46x PEG for FY25. The 12-month target price amongst analysts is $4.33, a discount to its $4.52 closing price last Friday. They expect some bottom line growth, an $18.2m profit in FY25, but slow growth in FY26 to $21.2m followed by accelerated growth in the next 2 years – $30.4m and $45.5m respectively. Inevitably, this will reflect when Coris joins the commercial product suite and starts generating revenues. We think investors wanting to buy Nanosonics would be better off waiting until then.

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