According to a recent Economist article, South Africa is "home to 0.7% of the world's population, but 17% of all HIV/AIDS sufferers." South Africa's HIV/AIDS infection rate alone is 17%, triple that of other sub-Saharan countries and more than 20 times higher than the global average. Those are outrageous numbers. Furthermore, Africa is home to some of the highest fertility rates in the world.
But while a morality debate about contraception rages in America, a change is starting to take hold in Africa. Surveys have shown that young South African men who reported using condoms shot up from 20% in 1999 to 75% in 2009, leading to a fall in new HIV infection rates. In a similarly dramatic move, contraceptive use in Malawi rose from 17% of women in 1998 to 42% in 2010.
The increased use of contraception and barrier protection bodes well for Female Health
And because it can used hours ahead of time, it puts more of the decision to use protection into the woman's hands, in a part of the world where men are often still culturally resistant to the decision themselves.
Heads of state, doctors -- no one is too great to partner with
While sub-Saharan Africa is the largest region for sales, this is a global company with ties to large aid agencies, including the United Nations Population Fund and John Snow (not the Game of Thrones character), which provides services for the United States Agency for International Development. These two customers account for more than 50% of Female Health's sales.
No other customer accounts for more than 10% of sales, but they are mostly other ministries of health, local governments, and non-government organizations, many of which require FDA approval for the products they distribute.
In the United States, Female Health has close relationships with Planned Parenthood, and public health departments in major cities including New York, Washington, and San Francisco have run campaigns to promote use of the company's second-generation FC2 condom.
Unfortunately, this means that Female Health's earnings tend to be a bit lumpy. As we've seen with the recent debate in America, laws can change and funding can suddenly be cut off even for things like women's health. Fortunately for Female Health, this usually doesn't result in a loss of sales, but it does mean orders can be delayed almost indefinitely. Two large orders from the Brazilian and South African governments were repeatedly delayed all last year and are now expected to finally ship in the 2012 fiscal year.
Because these large orders were delayed so long, trailing-12-month figures are abnormally low. Even so, the company has shown incredible growth over the past few years, from a consistently unprofitable, fledgling operation to one that commands a 24% operating margin, far higher than other contraceptive makers such as Church & Dwight
In fact, because of Female Health's small size as a company, if either of those larger condom and birth-control companies wanted to expand their portfolio of products, it would probably be easier for them to simply acquire Female Health than to try to innovate around their patents.
Let's talk about investing
I hope Female Health doesn't get acquired. The stock sports a 4% dividend that I'd rather not part with, but I'd also rather stick with the company for the long term as it profits from the trends and benefits of society at the same time.
Add Female Health to My Watchlist to stay updated on any delayed shipments or changing trends in Africa.
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Fool contributor Jacob Roche owns shares of Female Health. Check out his Motley Fool CAPS profile or follow his articles using Twitter or RSS. Motley Fool newsletter services have recommended buying shares of Pfizer and Female Health. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.