Medtronic, listed in America but legally based in Ireland, may not be a household name but its products play a big part in the lives of those who suffer from a range of common chronic conditions from diabetes to heart disease. Its products include insulin pumps, heart valves and defibrillators.
“These are non-discretionary items and as they are used in the treatment of chronic conditions they generate predictable revenues,” says James Harries, who holds the shares in his Troy Trojan Global Income fund. “The company also has a surgical division, whose most striking product is a surgical robot called Hugo.”
In his view Medtronic has several key strengths: its brand and the continuity it represents, which reassures not only doctors and patients but also regulators; the consequent reluctance among patients and doctors to switch to other suppliers; its scale – turnover was $30.1bn in the most recent financial year; and what he calls its “long history of innovation”.
“It has some new products coming through which should enhance its lineup. One is its ‘renal denervation’ system, a way to manage high blood pressure. It’s proven to work and the market is huge.
“Then there is ‘transcatheter aortic valve replacement’, a minimally invasive alternative to open-heart valve replacement surgery, while another is a pacemaker and defibrillator combined in one device,” he says. “All are unique to Medtronic; it leads those markets.”
Despite these advantages its shares have underperformed badly over the past three years, partly because of the impact of the virus on some parts of its business – while fitting a pacemaker should not be postponed, for example, surgery on someone’s spine might be.
“There is also a sense that the company has slightly lost operational coherence, while it has lost a bit of market share in some key areas,” Harries adds.
“But a new chief executive appointed almost two years ago has been reinvigorating the business, driving innovation and devolving more responsibility to the managers of its various businesses. We are optimistic about his ability to re-energise the firm. Meanwhile I expect demand for those products affected by the pandemic to normalise.”