In a recent conference call some of the analysts were very excited about NAN pursuing direct sales in the U.S and here is one perspective from Canaccord on why they're so excited:
"We believe that, for direct sales, the gross margin of trophon will increase from approximately US$2,500 to around US$7,000, and the margin on the Sonex consumables will increase from approximately US$40 per bottle to around US$90 per bottle. Thus, this move to add a direct sales operation in the US should provide NAN with the ability to access a much larger market in North America and provide more favourable economics. Consequently we have increased our price target for NAN to A$2.00 (previously A$1.35) and maintain our BUY recommendation."
A 180% increase in gross margin from trophon sales and a 125% increase from consumables quite exciting.
Clearly it will come at a cost in terms of growth over the short term, but this sets the company up well in the long run as it is not only the consumables that they can earn higher margins on, but the cost of servicing and the inevitable replacement of the trophon itself every four to five years.
Why give up to GE not just the initial sale but all recurring sales in terms of consumables and replacement units sold through GE Healthcare into the future when NAN can capture a greater share of the margins for itself?
I'm not sure if it was originally in the strategy, but I think letting GE establish a foothold in the U.S market and then slowly transitioning to direct sales strikes a good balance between going for growth and increasing profit margins.
NAN Price at posting:
$1.81 Sentiment: Buy Disclosure: Held
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