MVP back on the radar after striking Korea distribution agreement

By Trevor Hoey. Published at Sep 7, 2016, in Features

Shares in Medical Developments (ASX: MVP) surged on Tuesday in response to the company’s announcement that it had reached an agreement for the exclusive distribution rights of Penthrox in Korea, a development that should generate sales of 300,000 units per annum.

The 8% rally from the previous day’s close of $4.85 to $5.25 was in keeping with the material nature of this development. However, it is worth noting that the company’s shares were trading in the vicinity of $6.40 only two months ago and appear to have slipped off the radar for no apparent reason.

FinFeed highlighted in August that the company was drawing closer to securing distribution in the US, an event that would be a significant earnings driver.

This is still looming as an important share price catalys, as is the launch of Penthrox in France which Bell Potter expects will occur next month. These upcoming developments, along with potential upside from distribution of its Anti-static Space Chamber Respiratory Device supports the broker’s substantial earnings growth forecasts over the next three years.

Bell Potter analyst, Tanushree Jain, expects MVP to deliver compound annual earnings per share growth of nearly 70% between fiscal 2016 and 2019 inclusive. There would be few stocks that can match this growth profile across any sector, suggesting the 12 month share price target of $7.70 is fundamentally sound.

Consequently, yesterday’s share price bounce could be the start of bigger things to come particularly given the fact that MVP is trading at a discount of more than 40% to Bell Potter’s 12 month share price target.

However, it should be noted that historical trading patterns and broker projections are not an indication of future share price performance and investors should disregard these factors in making investment decisions.

One of the appealing aspects of MVP’s business is that it offers both earnings visibility and reliability from existing distribution agreements, while presenting blue sky opportunities for rollout of its products into new markets.

Industry dynamics within the global health services industry should continue to support organic growth in existing markets. There is a correlation between the number of visits to emergency departments (EDs) and the use of Penthrox, and with these numbers climbing due to out of hours primary care services predominantly being dealt with by EDs, sales volume should increase.

The distribution of Penthrox throughout Australia, South Africa, Singapore, Ireland and the UK is currently generating robust revenues. As MVP expands into mainland Europe and moves towards approval in the US it appears reasonable to assume that the company’s share price will align with its earnings trajectory.

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