The Investment Column: Gyrus has the scope to pay off long-term

The time has come to drown your sorrows over Monsoon
Click to follow
The Independent Online

Last year's acquisition of a US rival catapulted Gyrus, hitherto a relatively unknown medical devices company, into the UK's number 2 spot behind Smith & Nephew. Gyrus, a specialist in making equipment for keyhole surgery, had been flirting with American Cystoscope Makers Inc (ACMI) for more than five years and finally tied the knot in June.

Since the start of the millennium, Gyrus has doubled in size three times, each time by well-executed acquisitions. Yesterday's trading update painted a rosy picture for the Cardiff-based group, with the core business growing revenues by 14 per cent last year and ACMI performing well. Overall, annual revenues are expected to total £149m, up 70 per cent from the previous year. City analysts took heart from the fact that the integration of ACMI is proceeding well and upgraded their profit forecasts.

The company certainly paid a racy price - $497m (£280m) - for ACMI, which develops tiny cameras that allow surgeons to see inside the body during operations. It funded the deal through the issue of new equity and by taking on additional debt. But the transformational deal should prove its worth soon as it brings Gyrus the opportunity to move beyond its areas of specialist surgery into the much bigger market for general surgery.

The transaction has married the UK company's high-frequency tissue-cutting and sealing technology with ACMI's new digital endoscope, a camera that can be threaded into the human body. It also gives Gyrus a solid US platform from which to tackle the world's largest surgery market. The synergies are obvious as both companies operate in urology and gynaecology, with Gyrus hoping for sizeable cost savings as it can tap into ACMI's salesforce.

The shares have far outperformed the health sector over the past year, but despite this strong run, we believe they have further to go in the long term. Aside from Gyrus's growth opportunities, the prospect of new North American investors should support the stock going forward. At 385p, the shares are a buy.

The time has come to drown your sorrows over Monsoon

Six months ago, Monsoon shareholders were put on standby for a possible takeover bid from the retailer's chairman Peter Simon. For those with long memories, it was a case of déjà vu since Mr Simon, whose family controls three-quarters of the stock, tried to squeeze out minority investors three years ago.

Then, the 130p-per-share offer was complicated but the message simple: Mr Simon was not going to overpay. Investors - mainly hedge funds - rightly dug in their fashionable heels and watched the value of their investment soar as shoppers lapped up Monsoon's signature ethnic chic.

Since Mr Simon put the company in an offer period, the stock has soared almost 100p to more than £4. Investors, again quite rightly, figure that if he thinks the company is worth more, then it probably is. But therein lies the nub of the problem.

Because even Monsoon is finding the going tough - interim pre-tax profits fell 9 per cent to £25.5m - Mr Simon can't figure out how much the company is worth. Underlying sales actually fell during the autumn, leaving the company with "significantly" more racks of clothing than it had bargained for to shift in the sales. Mr Simon isn't prepared to offer a premium to the current 416.5p, but he knows that the hedge funds won't accept less. Hence the impasse.

There was no update on the offer for the remaining 24.6 per cent of the stock not controlled by the Simon family yesterday because of "no further developments".

That, coupled with the downturn in trading - which has not been helped by the fashion world going full circle from boho ethnicity to ladylike power-dressing - makes the stock a sell.

Comments