Narrow-Moat Nanosonics Continues to Look Overvalued

Nanosonics has had significant success building awareness around the need for improving high-level disinfection, or HLD, of ultrasound probes as evidenced by the trophon market penetration of 77% in Australia and New Zealand and 52% in North America in fiscal 2020. At the end of fiscal 2020, the company had an installed trophon base of 23,720 devices out of an estimated addressable market size of 120,000 globally. However, we expect high market penetration rates to be limited to developed economies which can afford to prioritise nuanced disinfection standards. We expect 10% growth on average over the next three years as trophon continues to gain share in North America and launch in Japan, followed by slowing growth once the device patent expires in 2025 and the more easily addressable markets are heavily penetrated. We forecast the trophon installed base to grow at a compound annual growth rate of 6.3% over the next 10 years.