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Cochlear Ltd : FY20 Result slightly disappointing

Timothy Anderson

Timothy Anderson is a contributor with the Australian Stock Report and is currently in his final year of studying a Bachelor of Applied Economics and a Bachelor of International Relations and Politics at the University of Canberra. Tim has a genuine passion for economics, specifically in macroeconomic analysis including how certain macroeconomic policies and indicators affect financial markets and the economy, as well as how these factors affect personal investment strategies. Tim currently holds RG146 Tier 1 Generic Knowledge qualifications.

Cochlear Ltd (ASX: COH) is a global leader in implantable hearing solutions. Cochlear has a market capitalisation of $16 billion.




What are the key features of the Cochlear profit report?

Cochlear reported FY21 sales revenue of $1.493 million, up 19% (constant currency (CC)) compared with FY20. FY21 underlying net profit of $237 million, up 54% (CC) compared with FY20. Management announced a final dividend of $1.40 per share, this brings the full-year dividend to $2.55 per share, up 59% compared with FY20. This represents a payout ratio of 70%. Regarding Cochlear’s operational performance, sales revenue from Cochlear implants, services (sound processor upgrades and others) and acoustic are up 19% (CC), 19% (CC) and 22% (CC) respectively, compared with FY20.

Importantly, Cochlear implants benefited from market growth and rescheduled surgeries from COVID shutdowns (from the previous fiscal year). Developed markets (US, Japan, Korea and Europe) reported unit volumes growth of around 20% from FY20 and an increase of around 10% from FY19. Emerging markets reported unit volumes growth of around 10% on FY20 and are in line with levels in FY19. It can be expected that developed markets rebounded faster due to a higher COVID vaccination rate.

Cochlear has maintained a sound balance sheet with net cash of $565 million, an increase of $108 million. This was driven by strong free-cash-flow in the period.


What is the outlook for Cochlear?

Management provides net profit guidance for FY22, which is in the range of $265-285 million, a 12%-20% increase on underlying profit for FY21. This increase in profit is expected to be driven by strong market growth and the continuing recovery in elected surgery rates across all markets.

Management also noted Capex is expected to be around $70-$90 million for FY22 and includes around $20 million related to a major process transformation and IT systems upgrade which is expected to cost around $100-$120 million over the next four to five years.


What is the market reaction to Cochlear’s profit result?

The market reaction to Cochlear’s profit result is negative with the share price down around 6% to $240 while the market is up slightly by 0.1% (20 August 2021). This suggests that Cochlear’s FY21 result is worse than market expectations. Cochlear trades on a forward P/E ratio in the high-fifties and has a dividend yield of around 0.8% (unfranked).


This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)
(“ASR”). ASR is part of Amalgamated Australian Investment Group Limited (AAIG) (ABN: 81 140 208 288 Level 13, 130 Pitt Street, Sydney NSW 2000).

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ASR has no position in any of the stocks mentioned.

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