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.
What is the HY20 result?
- Revenue for HY20 is A$3,354 million, up 15% compared with the corresponding period.
- Underlying EBITDA of A$548 million, up 14% on HY19. In constant currency terms, EBITDA growth was 11% in HY20.
- NPAT of A$254 million, up 14%.
- Earnings per share (EPS) is A53.7 cents in HY20, up 3.5% relative to HY19. EPS growth was impacted by equity raisings associated with Aurora Diagnostics acquisition in December 2018.
- The final dividend is 34 cents per share (30 per cent franked), up 3.0% relative to HY19.
What are the key drivers of this result?
Sonic Healthcare management noted that:
The results for the half again demonstrate the predictable, reliable nature of Sonic’s business, with the company on track to deliver the earnings growth guidance set in August 2019.
Organic revenue increased by around 5 per cent on a constant currency basis. Organic revenue growth was particularly strong in Australian, UK and Swiss laboratory businesses, as well as the Imaging Division. 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 versus the comparative period. This was achieved despite the headwinds of fee reductions in the US and statutory insurance fee quota changes in Germany.
The FY20 results were enhanced by the impacts of 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.
What is the outlook?
Sonic Healthcare management notes that after seven months of trading the Sonic Healthcare is on track to achieve the full year earnings guidance issued in August 2019 of 6-8% underlying EBITDA growth (constant currency and excluding impact of AASB 16 Leases accounting change).
Sonic Healthcare management indicated that:
The company is well set for future growth, with strong brands and market positions, our binding culture of Medical Leadership, and a balance sheet which provides significant financial flexibility. We continue to target synergistic acquisitions, joint ventures, and contract opportunities, particularly in the US and European laboratory markets. Organic revenue growth remains an integral part of the Sonic story, and our management teams around the globe are constantly pursuing service enhancements and other organic growth initiatives. Just a few examples include expansion of test menus to include increasingly complex tests, including genetic tests, provision of market leading e-health tools, and our ongoing billing system enhancement project in the United States.
What is the market’s reaction?
The market is slightly disappointed with the HY20 result, as reflected in the 2% fall in the Sonic Healthcare share price to A$30.80. This fall probably reflects that the Sonic Healthcare share price had a good run in January 2020 rather than any specific concerns with the HY20 result. Sonic Healthcare trades at a P/E ratio in the mid 20’s and an annual dividend yield of around 3.5 per cent (partially franked).
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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