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Cochlear Ltd HY20 Results – No Surprises But Earnings Outlook Lower

Stuart Lucy

Stuart Lucy is an Investment Specialist at the Australian Stock Report, and has gained exposure to funds management and investment banking throughout his career. He draws on this experience to provide macroeconomic commentary and actionable investment insights to clients. Stuart is responsible for writing reports, is involved in delivering Macrovue webinars and provides general advice to our members on portfolio construction. Stuart currently holds RG146 General and Securities qualifications.

Cochlear Ltd (ASX: COH) is a global leader in implantable hearing solutions. Cochlear has provided more than 550,000 implantable devices to all ages. Cochlear has a market capitalisation of $13.56 billion.




What are the results from Cochlear HY20 results?

  • Sales revenue for HY20 is A$18,894, up 5% at constant currency (CC) compared with the corresponding period.
  • Cochlear implants units for HY20 is 18,894, up 13% compared with the corresponding period.
  • Net profit (reported) for HY20 is A$157.7 million, up 22% at CC compared with the corresponding period.
  • Net profit (underlying) for HY20 is A$132.7 million, in line with the corresponding period.
  • Basic earnings per share is A$2.73, up 22% compared with the corresponding period.
  • Interim dividend per share for HY20 is A$1.60 (fully franked), up 3% compared with the corresponding period.


What are the drivers of this result?

A key driver of this result was the growth in implant revenue.

CEO and President Dig Howitt said:

The Nucleus ProfileTM Plus Series cochlear implant has been well-received by the market since its launch late in FY19 with developed market units growing by 7%. The US rebounded strongly, growing units by over 10%, with improvements in market share since the launch.  Western Europe also experienced an improvement in momentum with availability of the new implant expanding across the half. Units increased by 5% with growth weighted to the second quarter.

Another key point is that sales of units in emerging markets increased by over 20%, with growth delivered across many regions including the Middle East and China.


What is the outlook for Cochlear?

Cochlear’s management notes that FY20 guidance is as follows:

  • Net profit for FY20 is A$270 – A$290 million, a 2-9% increase on underlying net profit for FY19. This follows the downgraded earnings that Cochlear announced on the 11 February 2020 from A$290 – A$300 million (9 – 13% increase on underlying net profit).

A few main points on Cochlear outlook are as follows:

  • Cochlear expects strong growth in cochlear implant units in developed markets driven by the recent launch of the Nucleus Profile Plus Series cochlear implant.
  • Cochlear expects to release the new osseointegrated steady-state implant (OSIA) product later in FY20 to extend the Acoustics product portfolio.
  • Capital expenditure to increase to around $180 million, including the continued development of the China manufacturing facility, fitout of the new, larger Denver office as well as investment in IT platforms to strengthen connected health, digital and cyber security capabilities.

Finally, CEO and President Dig Howitt said on Cochlear outlook: 

We expect to continue to deliver growth in revenue and earnings in the coming years, underpinned by the investments made in product development and market growth initiatives. The balance sheet and free cash flow generation remain strong and we target a dividend pay-out ratio of around 70% of underlying net profit.


What is the market reaction?

The market reaction to Cochlear is negative. Cochlear is down 3.5% and is currently trading at A$225.75. Currently, Cochlear is very expensive with a forward P/E ratio in the high-forties and an annual dividend yield of 1.5%.



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).

This article is provided for informational purpose only and does not purport to contain all matters relevant to any particular investment or financial instrument. Any market commentary in this communication is not intended to constitute “research” as defined by applicable regulations. Whilst information published on or accessed via this website is believed to be reliable, as far as permitted by law, we make no representations as to its ongoing availability, accuracy or completeness. Any quotes or prices used herein are current at the time of preparation. This document and its contents are proprietary information and products of our firm and may not be reproduced or otherwise disseminated in whole or in part without our written consent unless required to by judicial or administrative proceeding. The ultimate decision to proceed with any transaction rests solely with you. We are not acting as your advisor in relation to any information contained herein. Any projections are estimates only and may not be realised in the future.

ASR has no position in any of the stocks mentioned.

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