Tristel (TSTL): Should I have sold it or not in the current climate?

[mark]

I bought Tristel in July 2016 for 132.76p and sold it just before the end of June 2020 at 430.00p. It was my best performing share to date unless you want to take into account Fundsmith!

I was a reluctant seller as I always believe you should run with your winners and cut your losses. It had an amazing recovery to after the Covid-19 crash in such a short space of time. In fact the share price exceeded the highest point before the crash and then went into a steady decline. It seemed to me that the confidence in the share seems to be waning. I suspect that the thorn in the thigh is the snail pace progress in the attempt to enter into US market. After a disastrous attempt to go alone, Tristel decided to partner with a large US pharmaceutical company in an attempt to fast track and break the deadlock which is predominantly around the FDA approval. Even if and when they achieve that, Tristel still have to apply for State approval as well. To date none of this has been achieved. This has been ongoing for at least 3 years and several million pounds of the companies cash.

The only caveat now particularly, as the pandemic worsening, is if the FDA fast-track to allow a powerful bactericide and virus killer to be sold to the health establishments in general, then I may be a buyer again. I am skeptical because of the Trump administration’s policy of “Buy American Products” which in the short term may put the breaks on that. A change of government may help. Who knows?

[MaynardPaton]

Hi Mark

Thanks for the post.

@mark

It seemed to me that the confidence in the share seems to be waning. I suspect that the thorn in the thigh is the snail pace progress in the attempt to enter into US market. After a disastrous attempt to go alone, Tristel decided to partner with a large US pharmaceutical company in an attempt to fast track and break the deadlock which is predominantly around the FDA approval. Even if and when they achieve that, Tristel still have to apply for State approval as well. To date none of this has been achieved. This has been ongoing for at least 3 years and several million pounds of the companies cash.

The protracted US project has been known for some time, and management has to take some of the blame for the delay. The executives have not admitted they were badly advised, but external consultants have ‘helped’ the board with the approval process and all parties seem naive in hindsight. In particular, shelf-life tests demanded by the FDA were started very late in the process – something that should have started much earlier because applicants have to await the shelf-life duration to then test the product for the FDA. You can’t just say this product is two years old, you have to make it and store it for two years under FDA approval guidelines.

Anyway, we are where we are and to a certain extent overseas expansion ex-US does seem attractive. France in particular appears to be a significant opportunity and as perhaps does Italy. All overseas markets are less mature than the UK, which is still growing.

I am not reading too much into the share-price slide of late. The trading update this month ought to reveal just how great (or not!) product demand has been. The question beyond that is whether such demand will be sustained. I think the pandemic will have brought disinfection higher up the agenda within the healthcare industry and additional scrutiny may be applied to some of the less effective disinfectants/practices used pre-pandemic.

@mark

The only caveat now particularly, as the pandemic worsening, is if the FDA fast-track to allow a powerful bactericide and virus killer to be sold to the health establishments in general, then I may be a buyer again. I am skeptical because of the Trump administration’s policy of “Buy American Products” which in the short term may put the breaks on that. A change of government may help. Who knows?

The products will be sold via the US partner, which will pay Tristel a royalty. Maybe the end customer won’t know or care about the product’s heritage, and just want properly disinfected facilities. Also, Nanosonics is an Australian firm supplying the Trophon disinfectant machine and has done well in the States selling through local partners.

So I am hopeful, but recognise revenue from the US could remain years away.

Maynard

[Piedro]

I feel that all the fuss about the US is a bit of a red herring.
Tristel has been there before and came away with nothing from a Clorox deal.

IMO the real opener will be India where they have had a distributor many years back.

[MaynardPaton]

Hi Piedro

Thanks for joining the forum. Good point on India. Do you have more info on India? All I know is the partnership with GE, which seems promising (and for Russia, too).

On the US, well, who knows when anything will happen there. But while we wait there are other overseas markets to exploit, and France in particular. I do think the Ecomed purchase and the appointment of Mr Leemans as an executive are positive moves that should enhance EU sales over time. A lot of commentators have talked about the valuation hinging on success in the US, but I think the present valuation is understandable given TSTL’s overseas potential ex-US.

Maynard