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Sonic Healthcare Ltd Trading update

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.

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.

 

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What did Sonic Healthcare announce yesterday (24 June 2020)?

Sonic Healthcare notes that during the second half of March, the pandemic and associated lockdowns precipitated dramatic falls in base patient volumes and revenues, almost simultaneously across Sonic’s global businesses. The declines in base business revenues varied significantly by market, but stabilisation of levels became evident in late April, followed by commencing recovery during May, at different rates in each market. In recent weeks, most of Sonic Healthcare’s divisions have returned to pre-Covid base volumes and revenues. Base revenues in the USA, the UK, Ireland, and Belgium are still below pre-Covid levels but the positive trend in each of these continues.

In recent months (May and June), Sonic Healthcare’s businesses have performed better than expected. This has allowed Sonic Healthcare to now provide a new earnings guidance for FY20.

For FY19 Sonic reported statutory Earnings before Interest, Tax, Depreciation and Intangibles Amortisation (EBITDA) of A$1.075 billion. Sonic now expects to report underlying EBITDA for FY 2020 at a similar level. This FY20 guidance is provided by using actual FY20 currency exchange rates to date. Sonic Healthcare will not provide guidance for FY21, as the current environment is to uncertain for that far in the future. This guidance is expected to be announced in August 2020 when Sonic reports its FY20 results.

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%. With this trading update, it is also expected that FY20 earnings will be in line with the previous year. This is positive news as earnings should not be down from the previous year. 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.

What is the market reaction to Sonic Healthcare trading update?

The market reaction (yesterday 24 June 2020) was positive. Sonic Healthcare’s share price was up around 4% and is currently trading at A$30.03. Sonic Healthcare is trading at a forward P/E ratio in the mid-thirties and has an annual dividend yield of around 2.3% (30% franked).


 

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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