The Nanosonics Ltd (ASX: NAN) share price has come under significant pressure this week.
With another decline this morning, the infection prevention specialist's shares are now down 11% since Friday's close.
Why is the Nanosonics share price under pressure?
Investors have been selling down the Nanosonics share price this week after the release of a very surprising announcement relating to its key North American operations.
That announcement revealed that, effective immediately, its current sales agreement with GE Healthcare will be revised to only a pass-through model until it expires in June. While it is unclear who or what drove the change, the loss of GE Healthcare is being seen as a major blow.
Goldman Sachs notes that "GE has played a critical role in driving adoption of NAN's trophon system over 10+ years and, in FY21, GE constituted 60% of NAN's Group sales."
And while the broker acknowledges that the transition of existing trophon customers from GE to Nanosonics is likely to boost its gross margin, it also carries a lot of risk.
Goldman commented: "All existing trophon customers will transition over to NAN from today, likely improving the gross margin profile on recurrent consumables sales, but also materially increasing the logistical complexity of NAN's business, not to mention the risk that some customers are slow to transition (or do not at all)."
"We are surprised by the abruptness of this announcement, particularly given the importance of this relationship to NAN. The new agreement is effective from today and seemingly has not afforded the company much/any time to invest for such a material change in sales/distribution strategy. Whilst NAN is still hoping to renegotiate a new agreement to take effect from July 2022, management commentary implied that any material change from these new arrangements could be unlikely," the broker added.
In light of this and its softer than expected first half, Goldman has downgraded its estimates and is now predicting a full year loss in FY 2022.
Is this a buying opportunity?
Despite the recent weakness in the Nanosonics share price, Goldman believes it is too soon to invest and suspects that further declines are on the way.
According to the note, the broker has retained its sell rating and slashed its price target by 14% to $3.80.
Based on the current Nanosonics share price of $4.49, this implies potential downside of 15%.
