After recently upgrading (28 October) full-year revenue growth to the top of its 2% to 3.5% target range, medical products company ConvaTec (CTEC) looks well placed going into 2021 as several tailwinds form.

A faster than anticipated recovery in US elective surgeries is providing a boost for its wound care business and new product launches position the company for renewed growth.

While Covid-19 still presents a challenge especially in the US where caseloads are still rising, the stars appear to be aligning for stronger than anticipated revenue growth translating into higher profit growth.

Before the pandemic management was confident 2020 would mark the trough year for margins. A temporary improvement this year from lower travel and other operating expenses, and a deferral of some investment in the ‘transformation programme’ has muddied the picture.

However, there remains the tantalising prospect that ConvaTec is on the cusp of entering a new phase of profitable growth, allowing the shares to claw back some of their sector valuation discount.

ConvaTec operates in attractive markets with structural growth drivers related to ageing populations. Its products serve patients with chronic and progressive diseases where there are few cures.

Of the four niches in which ConvaTec operates the insulin pump market for diabetes sufferers is expected to have the fastest growth potential at around 9% a year to 2023.

The company has market-leading solutions including a ‘smart glycaemic control’ which provides continuous monitoring of blood sugar levels of patients, a key advantage. In the third quarter the infusion segment saw particularly strong revenue growth of 27%.

The global ostomy market is expected to grow at 4.7% a year out to 2026 according to consultancy Coherent Market Insights. Ostomy involves the provision of prosthetic medical devices for the collection of waste in patients with diseases of the digestive system such as Crohn’s.

Continence and critical care and global wound care markets are expected to grow at 4.6% a year to 2026.

ConvaTec had by management’s own admission fallen behind competitors in wound care and ostomy but has since rectified the situation by introducing new products and better marketing.

The pandemic has created uncertainty around the timing of the inflexion point for ConvaTec to return to profitable growth, but the performance during the past year points to increasing momentum across the business.

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