Sonic Health – Buy On Solid Results

sonic healthcareSonic Healthcare Limited (SHL) listed as a buy share in the traders report on October 1st  is the world’s third-largest medical diagnostics company, offering laboratory medicine/pathology and radiology services to the medical community.

The company is structured as a decentralised federation of individually led diagnostic practices, with the head office in Sydney, Australia. SHL employees over 25,000 in eight countries: Australia; New Zealand; the UK; Germany; Switzerland; Belgium; Ireland; and the USA.

Key Points:

FY13 Results:

>>Revenues from ordinary activities came in at a record $3.48 billion, up 4.1% from last year
>>Reported NPAT was up 6% to $335m for the year ended 30 June 2013
>>The group paid 62 cents worth of dividends over the financial year, a 5% increase on FY12’s payout
>>The pleasing aspect of the results was the company’s continuing ability to grow its business organically

Healthy Balance Sheet:

>>Interest bearing debt sits $1.74 billion, equating to gearing (Net debt/(Net debt + equity) of 37.3% which is well within bank covenant limit of 55%
>>The groups interest cover (EBITA/Net interest expense) and debt cover (Net debt/EBITDA) sit at 8.6x and 2.4x, both figures well within bank convents
>>The balance sheet is supported by a healthy free cash flow, which has averaged $283 million over the last five years


SHL appear to be much more confident in its balance sheet with the company, last week announcing the acquisition of German lab business of Labco.

The transaction should be earnings accretive in FY14, but we think a majority of the benefits will be more evident in FY15 when synergies are full realised.

We think the group will continue to look for new acquisition, as pricing pressures in the sector drive further industry consolidation. Even without further acquisitions, the group has a solid record of organic growth and we see no reason why this will not continue.

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