Hurricanes Send London’s Top 2016 IPO Plunging

Updated on
  • Hurricanes add to delay in moving production to Caribbean
  • Revised full-year guidance could prove conservative: Goldman

The company whose initial public offering was London’s largest of 2016 saw its stock gain wiped out on Monday after saying supply shortages caused by hurricanes in the Caribbean weighed on third-quarter performance.

Convatec Group Plc shares dropped 21 percent to 219.5 pence at 12:10 p.m. in London, heading for the first close below the medical equipment maker’s initial public offer price of 225 pence.

The Reading, England-based company’s advanced wound-care division was unable to get supplies into its production channels in the Dominican Republic, causing knock-on disruption throughout the unit, Chief Executive Officer Paul Moraviec said after a trading update.

His comments come after Convatec warned in August of delays in relocating its production from Greensboro, North Carolina. Less progress than anticipated has since been made in reducing back-orders, with a consequent loss of some sales, the company said Monday.

Convatec now expects full-year organic revenue growth of 1 percent to 2 percent, and said this estimate would depend on its ability to resolve logistics problems.

While the revised guidance could prove conservative, especially for revenue, evidence of problems implementing a margin-improvement program (MIP) is disappointing, according to Goldman Sachs analyst Veronika Dubajova.

“Poor execution on the company’s flagship MIP potentially raises questions not just about the near-term, but also the medium-term margin trajectory for Convatec,” Dubajova, who has a buy/neutral rating on the stock, said in a note.

Fundamentals Unchanged

The fundamentals of the business haven’t changed, Moraviec commented in response.

“We’ve had a temporary setback and we will be back on track,” he said “The company’s markets are still very large and growing, and the product portfolio that we have is strong and differentiated.” 

Moraviec says the MIP remains a good opportunity and that it’s only a matter of time, once the manufacturing difficulties are resolved, before the benefits are seen.

In the event of future storms in the Caribbean, Moraviec said the company would ordinarily have emergency stock to rely on. “We had challenges in getting the lines up and running,” he said. “The fact that we had those problems meant that we were depleting those safety stocks and that’s why it had so much of an impact.”

— With assistance by James Cone

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