Fisher & Paykel Healthcare Corporation Limited (FPH)
SELL

Speedy recovery?

 29 Nov 2022
Sector: Health Care

1H23 RESULT

Need To Know

  • Earnings top end of guidance, driven by lower tax.
  • Margins expected to improve ~2%. Lower freight costs and a reduction of manufacturing inefficiencies.
  • Key product demand looks to normalising ahead of market expectations post COVID-19.
  • Full valuation multiples drive our cautious view on FPH.

Overview

Earnings NZ$95.9m vs market at NZ$92m. Guidance was NZ$85-95m.

Dividend 17.5cps in-line with consensus.

The lower tax rate of 16.1% (from 22.7%) drove the earnings beat. Excluding the benefit of the tax credit, earnings would have fallen below consensus at ~NZ$88m. We expect the tax rate will normalise into FY24.

Cash generation was poor at NZ$2m, largely expected given the drop in revenue as hospital demand normalises.

Importantly key product demand in hospitals looks to have stabilised post COVID demand surge.  FPH talk to month-on-month improvement in sales since May 2022

No quantitative guidance was given. Management did suggest that 2H revenue will grow from the first half (market at +4% growth)

Margins expected to improve by ~2% given falling freight costs and reduction in manufacturing inefficiencies.  Operational expenses (OPEX) are expected to decline from ~10% to ~8% in the 2H

The combination of improved costs and early stabilisation of demand implies that FPH could return to growth faster than expected. The market is expecting FY24E earnings to be up >30% on FY23.

Investment Implications

The strong share price reaction implies relief that the performance and outlook have not deteriorated further.

FPH is far from cheap at a forward PER of ~48x and a forward EV/EBITDA of ~27x, the company’s valuation appears full.

Healthcare peers ResMed (RMD) and Cochlear (COH) both trade on forward PER of ~25x. A lot is riding on the resumption of volume growth across the next years to justify the current share price. We reiterate our cautious view.

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Stock overview

Share Price

Company overview

Fisher and Paykel Healthcare Corporation Limited designs, manufactures and markets medical device products and systems for use in acute and chronic respiratory care, surgery and the treatment of obstructive sleep apnea.

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