Ambu created the world’s first single-use endoscope in 2009 and remains the market leader in the field they pioneered. Investing in a company specializing in single-use endoscopes may not sound particularly exciting, but it represents a fast-growing market with significant unmet customer needs. Transitioning from reusable endoscopes to single-use devices offers several advantages, including enhanced workflows, reduced costs, and improved patient safety. The key question is whether Ambu is a good investment. This is what we will investigate in this analysis.
This is not a financial advice. I am not a financial advisor and I only do these post in order to do my own analysis and elaborate about my decisions, especially for my copiers and followers. If you consider investing in any of the ideas I present, you should do your own research or contact a professional financial advisor, as all investing comes with a risk of losing money. You are also more than welcome to copy me.
For full disclosure, I should start by mentioning that at the time of writing this analysis, I do not own any shares in Ambu. If you would like to see the stocks in my portfolio or copy my portfolio, you can do so on eToro, You can find instructions on how to do this here. I don't own any stocks in competitors of Ambu either. Thus, I have no personal stake in Ambu. If you want to purchase shares (or fractional shares) of Ambu, you can do so through eToro. eToro is a highly user-friendly platform that allows you to get started with investing with as little as $100.
The Business
Ambu A/S, headquartered in Ballerup, Denmark, is a global leader in medical technology specializing in single-use endoscopy, anesthesia, and patient monitoring solutions. Founded in 1937 by engineer Holger Hesse, the company has a long history of innovation in healthcare. Ambu’s largest revenue driver, Endoscopy Solutions, accounted for 59% of total revenue in the 2023/24 financial year. This division focuses on high-quality single-use solutions across four major segments: pulmonology, ear-nose-throat (ENT), urology, and gastroenterology (GI). Growth in this area has been driven by the transition from reusable to single-use endoscopes, which offer significant benefits, including enhanced workflow efficiency, cost savings, and improved patient safety. The company’s innovative endoscopy portfolio addresses the growing demand for minimally invasive procedures and sustainability. The Anesthesia & Patient Monitoring division, representing 41% of revenue in 2023/24, focuses on solutions that facilitate ventilation and monitor patients’ vital signs. Key products include electrodes and ventilation tools designed to improve workflow efficiency and patient safety. Ambu has built a strong moat through its pioneering role in single-use endoscopy, remaining the market leader with the most comprehensive single-use endoscopy portfolio globally. The company’s commitment to sustainability further strengthens its position, as Ambu has transitioned all its endoscope handles to bioplastics, reducing environmental impact without compromising performance. The increasing share of revenue from Endoscopy Solutions, a higher-margin segment, coupled with improved production efficiency, has bolstered profitability. Ambu operates three R&D centers and four scalable production facilities in China, Malaysia, Mexico, and the USA, allowing it to innovate efficiently and meet global demand. Supporting over 100 million patients annually, Ambu’s solutions are distributed in more than 60 markets, with North America (51%) and Europe (39%) as its largest revenue contributors. Reinvesting 10% of endoscopy revenue into R&D, Ambu emphasizes customer-centric innovation, working closely with healthcare professionals to develop solutions that redefine patient care standards. With the world’s largest single-use endoscopy sales and marketing organization, the company is well-positioned to capitalize on the fast-growing single-use endoscopy market.
Management
Britt Meelby Jensen is the CEO of Ambu. She joined the company as CEO in 2022, having previously served on Ambu's Board of Directors from 2019 until her appointment. Her career spans over two decades in the life sciences sector. She began as a Management Consultant at McKinsey & Company (2000–2002) before joining Novo Nordisk A/S, where she held various leadership positions, including Corporate Vice President of Global Marketing, Market Access & Commercial Excellence (2002–2013). In 2013, Britt Meelby Jensen became CEO of Dako A/S, a global cancer diagnostics company. She then served as President and CEO of Zealand Pharma A/S from 2015 to 2019, during which the company was listed on Nasdaq in the U.S. From 2019 to 2022, she was CEO of Atos Medical AB, a Swedish medtech company, where she led its sale to Coloplast. Britt Meelby Jensen also serves as a board member of Novo Holdings and the Hempel Foundation. She holds a Master of Science in International Marketing and Management from Copenhagen Business School and an MBA from Solvay Business School in Brussels. Britt Meelby Jensen is highly regarded for her exceptional leadership qualities, blending strategic vision with inclusivity and transparency. In 2024, she was named "Årets Leder" (Leader of the Year) in Denmark, a testament to her remarkable ability to navigate challenges and deliver results. Her leadership style is defined by a commitment to listening, inclusivity, and decisiveness. She is credited with successfully turning around struggling organizations, including Ambu, where her focus on clear strategy and building the right team has driven significant progress. Colleagues and mentors describe Britt Meelby Jensen as ambitious yet empathetic, combining sharp business acumen with humility and a strong moral compass. At Ambu, she has prioritized fostering trust and creating a collaborative culture. Her ability to execute challenging decisions without compromising transparency has been a hallmark of her leadership. Her willingness to take risks, such as leaving a stable role at Novo Nordisk for more demanding leadership positions, has consistently resulted in strong outcomes. I feel very confident in Britt Meelby Jensen’s leadership at Ambu moving forward, as she is widely recognized as one of the best leaders in Denmark.
The Numbers
The first metric to investigate is the return on invested capital (ROIC). Our criterion requires a 10-year history with all figures exceeding 10% annually. Ambu has only managed to achieve a ROIC above 10% in five out of the past ten years, and none since fiscal year 2020, which is concerning. One reason for the low ROIC is Ambu’s significant investments in expanding its single-use endoscopy portfolio and manufacturing capabilities. While these investments are aimed at driving future growth, they have negatively impacted ROIC in the short term. However, it is encouraging that Ambu achieved its highest ROIC since 2020 in fiscal year 2024. In the annual report, Ambu mentions its goal of providing long-term shareholder returns by achieving a ROIC that exceeds the cost of capital. I appreciate when a company prioritizes ROIC, and this focus gives me hope that ROIC will exceed 10% again in the near future. Nonetheless, the ROIC performance over the past five years has been underwhelming.
The following numbers represent the book value + dividend. In my previous format, this was referred to as the equity growth rate. It was the most important of the four growth rates I used in my analyses, which is why I will continue to use it in the future. As you are accustomed to seeing numbers in percentage form, I have decided to provide both the actual numbers and the year-over-year percentage growth. I don't have the growth rate from 2013 as Finbox only provides data for the past ten years. Ambu has managed to grow its equity every year since 2016, which is encouraging. Some years, such as 2018, experienced significant growth in equity due to events like the acquisition of Invendo Medical, while other years saw more modest year-over-year growth. Nonetheless, the consistent increase in equity since 2016 is a positive indicator, and there is no reason to believe this trend won’t continue.
Finally, we will analyze the free cash flow. Free cash flow, in short, refers to the cash that a company generates after covering its operating expenses and capital expenditures. I use levered free cash flow margin because I believe that margins provide a better understanding of the numbers. Free cash flow yield refers to the amount of free cash flow per share that a company is expected to generate in relation to its market value per share. Ambu has delivered positive free cash flow in nine of the past ten years, which is a strong indicator of its financial resilience. Notably, the company achieved its highest free cash flow ever in fiscal year 2024. Management attributed this record performance to strong operational execution and effective management of net working capital. Additionally, management has guided that free cash flow is expected to remain at a similar level in fiscal year 2025. It is also encouraging that the levered free cash flow margin reached its highest post-pandemic level in fiscal year 2024. As the Endoscopy Solutions division continues to grow at a faster rate than the Anesthesia & Patient Monitoring division, there is potential for further improvement in the levered free cash flow margin in the future. The free cash flow yield is at its highest level in the past decade, suggesting that the shares are currently trading at a lower valuation than usual. However, a free cash flow yield of 2,5% does not necessarily indicate that the shares are cheap. We will revisit valuation later in the analysis.
Debt
Another important aspect to consider is debt. It is crucial to assess whether a business has a manageable level of debt that can be repaid within a three-year period, calculated by dividing total long-term debt by earnings. Upon analyzing Ambu's financials, the company currently has no debt, which means debt is not a concern when considering investing in Ambu. Furthermore, there is no indication that debt will become a concern in the future. Ambu has recently adjusted its dividend policy, lowering it from paying out 30% of net profit after tax to paying out up to 30% of net profit after tax. This change reflects the company’s commitment to maintaining a strong balance sheet, enabling it to pursue potential acquisitions without taking on excessive debt. This prudent approach further reinforces Ambu’s financial stability.
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Risks
Acquisitions pose a significant risk for Ambu, as demonstrated by the challenges following its 2017 acquisition of Invendo Medical, a German company specializing in gastroenterology (GI) solutions. This acquisition, made under previous management, was intended to establish a strong presence in the GI market. However, the timeline for bringing products to market and achieving significant sales has been much longer than initially anticipated, delaying returns on this investment. The slower-than-expected market penetration led Ambu to reassess the short-term potential of its GI products, such as the Colon and Duodeno endoscopes, which remain in the testing phase. As a result, Ambu reduced the reported value of its GI business by DKK 327 million in the fourth quarter of fiscal year 2024. Additionally, changes to the production setup for these products added further costs, resulting in a total one-time expense of DKK 334 million for the fourth quarter of 2024. These challenges highlight the risks associated with acquisitions, particularly when the expected timeline for market success and returns is not met.
Regulatory risks are a significant concern for Ambu due to the highly regulated nature of the medical technology industry. The company operates across multiple geographies and business areas, each subject to a complex and often unpredictable legal environment. Variations in laws and regulations between regions add to this complexity, increasing the risk of non-compliance and the potential consequences that may follow. Ambu must comply with strict anti-corruption laws, data privacy regulations, and healthcare-related legal requirements. As public awareness of business ethics and personal data protection grows, regulatory scrutiny has intensified, raising the stakes for compliance. Failure to adhere to these standards could lead to lawsuits, investigations by authorities, criminal sanctions, and financial penalties. For instance, non-compliance with healthcare laws or Ambu’s internal Code of Conduct could result in both reputational damage and legal repercussions. This unpredictable regulatory environment poses financial and operational risks, as even minor infractions can lead to significant disruptions. Furthermore, the cost of ensuring compliance - through legal oversight, audits, and employee training - adds to the company’s operational burden. As Ambu continues to innovate and expand its product offerings, maintaining compliance across diverse jurisdictions remains a challenging but essential task to mitigate these risks.
Cost pressures and the push for efficiency in healthcare systems pose a notable risk for Ambu, particularly in its key markets. Governments, hospitals, and healthcare providers are under constant pressure to reduce costs while improving patient outcomes. This dynamic creates significant challenges for medical technology companies like Ambu, which rely on the adoption of innovative products to drive growth. Ambu’s Anesthesia & Patient Monitoring segment has historically faced modest price pressures due to its more established product portfolio. However, as healthcare systems continue to prioritize cost efficiency, this segment may encounter increasing pricing challenges. On the other hand, the Endoscopy Solutions segment, which has so far experienced relatively stable pricing, faces risks related to the adoption and acceptance of single-use endoscopy technology. These risks include potential delays in product launches, slower market penetration, and resistance to the higher upfront costs associated with adopting new technologies, even when they offer long-term cost savings and safety benefits. Broader economic and political developments, such as budgetary constraints, healthcare reforms, or changes in reimbursement policies, could further exacerbate these challenges. For example, economic downturns or shifting government priorities might result in reduced healthcare spending, slowing the pace of market creation for single-use endoscopy. Similarly, delays in product launches or slower-than-expected adoption of single-use endoscopes could limit Ambu’s ability to fully capitalize on its innovative product portfolio.
Reasons to invest
The pulmonology business is a compelling reason to invest in Ambu due to its strong growth potential, innovative product offerings, and leadership position in the single-use bronchoscopy market. Pulmonology is a core segment within Ambu's Endoscopy Solutions division, with approximately 5 million procedures performed annually, of which Ambu addresses around 4.1 million. This substantial addressable market continues to expand as healthcare providers increasingly adopt single-use bronchoscopes, driven by their workflow efficiency, cost-effectiveness, and enhanced patient safety. Ambu’s aScope 5 Broncho has been a major growth driver, offering clear and detailed imaging along with versatile functionality, making it suitable for both simple and complex medical procedures. In the U.S., the product has gained additional momentum thanks to Medicare’s special reimbursement support, which has made it more attractive for hospitals to adopt. Ambu’s strong position in the pulmonology market is further reinforced by a diverse range of products, including VivaSight, a tool designed for advanced procedures that integrates seamlessly with its bronchoscopy offerings. The company is also enhancing its product lineup with new innovations, such as the SureSight videolaryngoscope, designed to cater to both mobile use (e.g., in ambulances) and hospital-based care. These new products enable Ambu to meet a wide variety of medical needs in different settings, including operating rooms, intensive care units, and specialized procedure suites. With steady growth of 11,7% over the past year and plans for additional product launches, Ambu’s pulmonology business is well-positioned to drive long-term growth, supported by increasing demand for efficient and sterile single-use solutions.
Endoscopy excluding pulmonology is an important reason to invest in Ambu due to its strong growth potential, expanding product portfolio, and increasing market adoption of single-use endoscopy solutions in urology, ear-nose-throat (ENT), and gastroenterology (GI). This segment has demonstrated remarkable growth, with a 29,6% increase over the past year, making it nearly as large as Ambu’s pulmonology business. In urology, Ambu now offers a comprehensive portfolio that includes two cystoscopes and the recently launched aScope 5 Uretero. This ureteroscope, used in procedures like kidney stone removal, is a higher-value product targeting a market already partially converted to single-use solutions. The combination of advanced imaging capabilities, workflow efficiency, and cost reductions associated with single-use devices makes Ambu’s offerings highly appealing to healthcare providers. In ENT, Ambu addresses approximately 6 million of the 17 million annual procedures performed globally. Single-use solutions are increasingly favored in both in-patient and out-patient settings due to their ability to enhance workflow efficiency, eliminate reprocessing time, and improve scheduling reliability. In GI, Ambu is taking a stepwise approach, recognizing the immense potential of this largest global endoscopy market. While the GI segment has taken longer to penetrate due to its complexity, Ambu remains confident in its mid- to long-term growth prospects. Hospitals are increasingly valuing the sterility and convenience of single-use solutions, especially for critical care and infection-prone procedures. Ambu’s ability to deliver innovative, high-quality single-use solutions across these three segments positions it well to capture a larger share of these markets, further reinforcing its growth trajectory and leadership in single-use endoscopy.
Ambu’s Anesthesia and Patient Monitoring (A&PM) division is a solid reason to invest in the company, thanks to its focus on profitability, reliable product offerings, and steady market growth. While this segment operates in a less dynamic market compared to endoscopy, it provides stability and long-term value, driven by strong customer loyalty and the essential nature of its products. A key strength of A&PM is Ambu's ability to implement successful price increases in selected low-margin areas to ensure sustainable profitability. These adjustments, applied without significant volume losses, have supported growth while maintaining strong customer relationships. In the Anesthesia portfolio, Ambu has a long history of innovation. Its products, including resuscitators, laryngeal masks, and breathing circuits, are critical tools used in millions of procedures annually, both in-hospital and out-of-hospital. Key growth drivers for this segment include an aging global population, an increase in respiratory diseases linked to pollution, and the global rise in surgical procedures. The Patient Monitoring segment further strengthens Ambu’s position within A&PM. Its single-use electrodes are renowned for reliability and precision, with over one billion electrodes sold annually. These products play a crucial role in diagnostics and monitoring across hospitals, clinics, and emergency services. The emphasis on single-use solutions aligns with healthcare providers’ growing focus on infection control and patient safety. With its strong market presence, essential product portfolio, and demographic trends supporting long-term demand, Ambu’s A&PM division offers a reliable foundation for sustained profitability and growth.
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Valuation
Now it is time to calculate the share price. I perform three different calculations that I learned at a Phil Town seminar. If you want to make the calculations yourself for this or other stocks, you can do so through the tools page on my website, where you have access to all three calculators.
The first is called the Margin of Safety price, which is calculated based on earnings per share (EPS), estimated future EPS growth, and estimated future price-to-earnings ratio (P/E). The minimum acceptable rate of return is 15%. I chose to use an EPS of 0,88, which is from 2024. I have selected a projected future EPS growth rate of 15%. Finbox expects EPS to grow by 54,5% a year in the next five years but 15% is the highest I use. Additionally, I have selected a projected future P/E ratio of 30, which is twice the growth rate. This decision is based on Ambu's historically higher price-to-earnings (P/E) ratio. Finally, our minimum acceptable rate of return has already been established at 15%. After performing the calculations, we determined the sticker price (also known as fair value or intrinsic value) to be DKK 26,40. We want to have a margin of safety of 50%, so we will divide it by 2. This means that we want to buy Ambu at a price of DKK 13,20 (or lower, obviously) if we use the Margin of Safety price.
The second calculation is known as the Ten Cap price. The rate of return that a company owner (or stockholder) receives on the purchase price of the company essentially represents its return on investment. The minimum annual return should be at least 10%, which I calculate as follows: The operating cash flow last year was 813, and capital expenditures were 88. I attempted to analyze their annual report to calculate the percentage of capital expenditures allocated to maintenance. I couldn't find it, but as a rule of thumb, you can expect that 70% of the capital expenditures will be allocated to maintenance purposes. This means that we will use 62 in our calculations. The tax provision was 65. We have 266,4 outstanding shares. Hence, the calculation will be as follows: (813 – 62 + 65) / 266,4 x 10 = DKK 30,65 in Ten Cap price.
The final calculation is called the Payback Time price. It is a calculation based on the free cash flow per share. With Ambu's Free Cash Flow Per Share at DKK 2,72 and a growth rate of 15%, if you want to recoup your investment in 8 years, the Payback Time price is DKK 42,94.
Conclusion
I believe Ambu is an intriguing company with strong management. The company pioneered the single-use endoscopy market and has established a strong moat through its leading role in this innovative field. While the company has delivered an underwhelming ROIC over the past five years, there are encouraging signs of improvement, and ROIC is expected to exceed 10% soon. Additionally, Ambu recently achieved its highest free cash flow ever, and its levered free cash flow margin is steadily improving. Acquisitions present a risk for Ambu, as delays in market penetration and slower-than-expected returns can impact performance, as seen with its 2017 acquisition of Invendo Medical. This acquisition led to significant write-downs and added costs, as GI products took longer than anticipated to achieve commercial success. Regulatory risks are significant for Ambu due to the complex and unpredictable legal environment in the medical technology industry. Compliance with diverse and evolving laws across multiple geographies is critical, and any missteps could lead to financial, operational, or reputational challenges. Cost pressures and the demand for efficiency in healthcare systems pose additional risks for Ambu, as providers focus on reducing expenses while improving patient outcomes. This creates pricing challenges and may slow the adoption of new technologies, even those that offer long-term benefits. Ambu’s pulmonology business is a strong reason to invest, given its leadership in the growing single-use bronchoscopy market, innovative product offerings, and steady demand for sterile, efficient solutions. Similarly, endoscopy excluding pulmonology is compelling due to its robust 29,6% growth over the past year and the increasing adoption of single-use solutions in urology, ENT, and GI. Ambu’s Anesthesia and Patient Monitoring division provides stability, offering essential products and steady market growth. With a focus on profitability, successful price increases, and high-demand offerings, this division benefits from strong customer loyalty and demographic trends such as an aging population and rising respiratory diseases, ensuring long-term value. I personally believe that the best is yet to come for Ambu. I plan to buy shares below the intrinsic value of the Payback Time price of DKK 84.
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