Midas Extra share tips: Tribal Group & Lombard Medical Technologies

By This Is Money
Updated:

 

The stockmarket has been in relatively robust form this week. In stark contrast to the past fortnight, stocks have been rising and bank share prices in particular have reversed some of the horrendous losses incurred since the beginning of the year.

No one believes for a moment that economic recovery is imminent. But a measure of realism seems to have come over the market and a realisation that some shares have been hit far more than they deserved.

Wild price swings remain a feature of the London market however, and, for the long-term investor, it is still wise to look for companies with real, underlying growth potential.

Tribal Group

Tribal does what the civil service used to do. It works almost exclusively for government departments, particularly health and education, and it acts as both an officer and a foot soldier. In other words, it provides high-level consultancy services and real, on-the-ground work.

The company is commissioned by the NHS, for example, to give advice on improving supply chain management and reducing costs at leading hospitals. But it also carries out Ofsted inspections, supplying the Department of Education with qualified inspectors to go round schools across the country.

The group joined Aim in 2001 and moved to the main market the following year. It now employs 2200 staff and works for 2500 public sector organisations. The company's shares have suffered in recent months, largely thanks to wider market conditions. Inherently, however, this business is extremely sound.

It has a strong balance sheet and its main customer is the Government, which is still the most reliable payer in the country. Tribal chief executive Peter Martin released a trading statement today, expressing confidence in the future.

The company already has commitments worth £139m for 2009 and a potential pipeline of work, worth almost £300m. The group is also relatively cheap to run. Its main expenses are computer equipment and staff and even here, there is a degree of flexibility, because it uses contract workers as well as full-time employees.

Reader offer: free brochures

null

funds

Analysts expect profit before tax of around £18m for the year just ended, and a dividend of 4.3p, putting the stock on a yield of more than 5%. Profits for 2009 should be around £21.5m and the dividend is forecast to rise to 4.6p.

Midas verdict: Tribal shares are trading at 89p and have been as high as 144p. Their recent treatment by the market is unjustified. Government spending on health and education is likely to persist whatever the economic climate and there is an ongoing trend towards using external suppliers wherever possible. This should benefit Tribal in the short and medium-term. Buy.

Lombard Medical Technologies

Heart disease is not a pretty subject. The largest cause of death in the developed world, it is also a growing phenomenon as people live longer, exercise less and eat too much unhealthy food.

Some heart conditions cannot be cured. But an increasing number can, including abdominal aortic aneurysms. The aorta is the largest artery in the body, going from the heart right down to the toes.

Sometimes a part of the aorta swells up and it can even burst. This sounds horribly gory – and it is. Abdominal aortic aneurysms (AAAs) are one of the biggest killers in the US and Prime Minister Gordon Brown recently highlighted the disease in a speech he gave on preventative health care.

Traditionally AAAs have been treated by open surgery. This is uncomfortable, convalescence takes months and the risk of death is around 5%. The alternative is endovascular surgery, where a stent is inserted into the aorta through a catheter. This is much less invasive and far safer than being cut open, and recovery times are shorter as well.

Lombard Medical Technologies, formed at the turn of the century, makes a particularly clever type of stent. Most of these products are quite rigid, so they can keep the aorta in the right shape. Lombard's is more flexible – a bit like that children's toy, the Slinky. This means it can be used by many more patients, including some that no other stent can help.

Reader offer: free brochures

null

Weighing up your mortgage

The company is already distributing its stent product, called Aorfix, in the UK and Europe and trials are ongoing in the US, which should be completed by the end of next year. America is the biggest healthcare market in the world and Lombard is optimistic that Aorfix will be on sale there early in 2011.

Lombard is a small company, currently valued on the stockmarket at £1.6m. The share price was savaged last year, when followers thought it would run out of cash. The stock fell from 15p to 0.5p but the company pulled a rabbit out of the hat last December and raised £6.4m of equity, enough to see it through the next phase of its development.

The money came from a variety of interesting sources. A group of Canadian doctors are so keen on Aorfix they committed £1m of their own cash to the Lombard fund-raising. Non-executive director Craig Rennie, an extremely astute entrepreneur, put £1m of his own savings into the company and most of the rest of the money came from blue-chip investment institutions Invesco and Fidelity.

These shareholders have not committed capital to Lombard out of charity. The market for the treatment of AAA is worth £800m globally and is expected to be worth £1.2 billion by 2013. Aorfix is one of the most cleverly-designed treatments in the market and, once it is approved in the US, sales should rocket.

Midas verdict: Lombard has had a chequered history but a new management team was recently installed, under chairman Simon Neathercoat and chief executive Brian Howlett. The duo, along with the rest of the board, are focused and committed to making this business work. The shares are 1.18p and not for the cautious investor. But, if all goes according to plan, these shares could soar. Take a punt.

Some links in this article may be affiliate links. If you click on them we may earn a small commission. That helps us fund This Is Money, and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to affect our editorial independence.

Most watched Money videos