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Sonic Healthcare – Steady And Predictable Growth Expected To Continue

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.

Sonic Healthcare (ASX: SHL) is a leading provider of medical diagnostic services (pathology and radiology). It has a dominate position in the Australian market and has established a large presence in the United States and German markets and, to a lesser extent, the United Kingdom, Switzerland, Belgium, and New Zealand markets. Sonic Healthcare has a market capitalisation of A$10 billion.

 

SHL


Update on Coronavirus

The coronavirus (COVID-19) was first reported from the Wuhan province in China on 31 December 2019. The World Health Organisation data shows a total of confirmed cases of 334,981 and 14,652 deaths globally. As of today (24 March 2020), there have been over 1709 confirmed cases and 7 have died of COVID-19 in Australia.


What is the update Sonic Healthcare’s share price?

Sonic Healthcare’s share price has dropped by around 25% over the last month. Sonic Healthcare is currently trading at A$22.5. This compares with a fall in the ASX200 of about 35%.


What is Sonic Healthcare COVID-19 response?

Today (24 March 2020) Sonic Healthcare announced that the company is withdrawing its earnings guidance for FY20 due to the level of uncertainty resulting from COVID-19. Sonic Healthcare’s management note that after 8.5 months, Sonic Healthcare’s trading results are consistent with the earning guidance previously provided. However, as populations in Sonic Healthcare’s markets self-isolate or are quarantined, there is potential for diagnostic testing volumes to be impacted in the short to medium term.


Sonic Healthcare is on the front line in Australia, United States and Europe testing thousands of patients daily for COVID-19. Sonic Healthcare has been working closely with the company’s major supplies to ensure that the company’s supply chain is not material hurt by the spread of COVID-19.


Sonic Healthcare has a strong balance sheet, with almost A$1 billion in cash and committed credit facilities currently available (prior to payment on 25 March of the FY20 Interim Dividend of approximately A$162 million. None of Sonic’s debt facilities are due to mature until CY 2021. This puts Sonic Healthcare in a strong financial position to see out the COVID-19 outbreak.


What is the outlook for Sonic Healthcare?

The outlook for Sonic Healthcare is positive. Sonic Healthcare reported positive earnings results in HY20 with NPAT being up 14% and revenue being up 15%. Sonic Healthcare business is diversified amongst several markets with future growth opportunities expected through acquisitions, joint ventures and contacts, which should increase revenue in the coming years.


In addition to revenue growth, management continues to identify and implement efficiency improvements across the whole business which has enabled both the Global Laboratory Division and the Imaging Division to expand margins.


Regarding Sonic Healthcare most recent acquisition, the Aurora Diagnostics acquisition in the United States completed in January 2019. The Aurora business has performed well since acquisition, in line with expectations, and cost and revenue synergies are being implemented.
Investors that want exposure to the healthcare care sector could sector could consider following Sonic Healthcare. The medical diagnostic services industry is expected to continue to grow steadily over time and issues like COVID-19 are likely to add rather than subtract this steadily growth.


 

Disclaimer:


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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