TSO3 has 79% upside, says Laurentian

Following TSO3’s (TSO3 Stock Quote, Chart, News: TSX:TOS) investor day in South Carolina, Laurentian Bank Securities analyst Nick Agostino is feeling confident in his bullish take on the company.

At the event, the analyst notes there were customer testimonials, a tour of the company’s new compatibility testing services and a discussion of the regulatory environment around sterilization equipment. But he says it was the presence of Getinge that gave him the most confidence.

In 2015, TSO3 announced it had granted Getinge Infection Control AB the exclusive global rights to distribute its Sterizone VP4 sterilizer for (U.S.) $7.5-million, plus performance minimums. The agreement contains a shipment requirements that require Gentinge to reach 10 per cent of the annual global replacement market, which TSO3 estimated at $450-million annually, or 3000 units.

Agostino says that while Getinge was short on some detail, the company’s enthusiasm instilled confidence.

“While installation data was not provided, commentary from 3 levels of Getinge management including Frederick Pette reinforced the strength / importance of the relationship with TOS, suggested an opportunity for low temperature sterilization to replace steam, and confirmed that duodenoscope approval could open up the market for TOS,” he says. “We view this commentary as a reconfirmation of our investment thesis, in particular the disruptive nature of TOS`s technology.”

In a research update to clients today, Agostino maintained his “Speculative Buy” rating and one-year price target of $5.00 on TSO3, implying a return of 78.6 per cent at the time of publication.

Agostino thinks TSO3 will generate EBITDA of negative $3.8-million on revenue of $12.8-million in fiscal 2016. He expects these numbers will improve to EBITDA of Zero on a topline of $24.0-million the following year.

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