In today’s daily we have covered the upcoming Sonic Healthcare (EXPENSIVE).











 
The S&P 500 was down by 4.66points or 0.23%on Tuesday to 2013.15 points.Exxon Mobil Corp. and Chevron Corp. paced losses in energy shares as oil sank to as low as $75.84 a barrel in New York. Sprint tumbled 17 percent as the wireless carrier lost subscribers for an 11th straight quarter. Priceline slid 9.2 percent on a weaker-than-projected sales forecast. Energy stocks have been the S&P 500’s biggest losers in the second half of the year having fallen 6.8% this quarter.

U.S. crude oil was trading down more than 2 percent at $76.94 a barrel, while Brent crude futures were down 2.1 percent to $82.98, extending losses after top oil exporter Saudi Arabia cut prices to the United States. The European Commission cut its growth forecast for the euro area and said inflation will be even weaker than theEuropean Central Bank predicts. The ECB meets Nov. 6 to deliberate on monetary policy amid increasing the pressure for the central bank to consider additional stimulus.


Exxon Mobil Daily Chart (Source – Thomson Reuters)
S&P ASX 200was up by 13.0points or 0.24%on Tuesday and closed at 5519.9 points. Woolworths dropped 2.8 per cent to $33.30 following the release of disappointing quarterly sales figures on Monday. Mining was one of the best-performing sectors on the ASX as resources giant BHP Billiton bounced 0.9 per cent to $34.01, while main rivalRio Tinto rallied 1 per cent to $60.35. 
The Australian dollar is trading at US87.30¢ at 6.09am AEDT, compared with US87.29¢ at Monday’s local close. SPI futures are down 6 points at 6.09am. Iron ore down 0.8% at $US78.01 a tonne. There were no surprises from the RBA on Tuesday. In a move that was considered a sure bet, the board kept the official interest rate at its record low 2.5%, for the 15th month in a row. ABS report showed retail sales rose 1.2 per cent in September, smashing forecasts for a 0.3 per cent rise.

ASX 200 Daily Chart (Source – Thomson Reuters)
 
Top Performers on the ASX 200 were :-


 
Stock of the Day - Sonic Healthcare Limited (EXPENSIVE)

In today’s daily, we are covering Sonic Healthcare Limited (SHL), the world’s leading global providers of medical diagnostic services, which delivered a healthy financial result for FY14. Net profit rose by 15% on the prior year, at A$385 million, and the EBITDA margin improved by 17 basis points. Revenue growth of 12%, to A$3.9 billion was witnessed.


Gross Revenue, Net Profit and EBITDA (Source – Company Reports)

The Company reported margin growth in Pathology (excluding the impact of the acquisition of the lower margin Labco Germany business), Imaging and IPN (medical centre and occupational health businesses).

Even with few challenges in local market conditions in certain countries, SHL’s operations appear to perform well. The Company also noted the recent volume growth in the USA post a lull period in laboratory medicine. Subsiding fee pressures in some markets, cost initiatives and improved growth appear to benefit the Company.


Net Cash Flow from Operations (Source – Company Reports)

Specifically, SHL’s Australian Pathology revenue growth was of 6% in spite 1.1% Medicare fee cut from 1 January 2013. Revenue growth in the USA was low and was consistent with the organic growth rate of SHL’s major competitors in said market. Extreme weather in a few months impacted the volume growth which was 2.2% for the year. With various marketing initiatives, the volume growth is now improving. Strong revenue growth was also witnessed in European operations which entailed the UK (12%) and Switzerland (11%), with German growth (12%) amplified by acquisitions. Fee cut also impacted SHL’s Belgian operations. Company’s Australian Imaging business grew revenue by 5%. 

The Company significantly relies on organic growth, acquisitions and contracts as potential sources of future growth. SHL reported that the long-term market growth trend applicable to countries in which it operates is approximately 5%, and is braced by the ageing of the population, introduction of new tests, and the swelling attention on preventative medicine. The Company has successfully executed and integrated around 100 acquisitions up till now. SHL is poised to engage with like-minded, high-quality businesses, and believes that all its acquired assets have provided incremental expertise and value to the strength and stature of the company.

With regards to contracts, the increasing global trend of pursuing outsourced healthcare services from private sector providers, by governments and third parties has been in SHL’s favor. The Company considers the opportunity of new market expansion in view of its unique Medical Leadership culture which acts as a catalyst for partnering with quality organizations. A recent example entails the UK joint venture with the University College London Hospital NHS Foundation Trust (UCLH) and the Royal Free London NHS Foundation Trust (the Royal Free).

A quality workplace for staff, specialist consultative services for customers, and superior returns to shareholders are reported to strengthen the Company’s culture and position.


Dividends Paid per Ordinary Share (Source – Company Reports)

The Company has also extended its help to others and for many charities. For example, SHL is providing support to the HEAL Africa Hospital, located in Goma in the Democratic Republic of the Congo. The Company has supported the pathology laboratory of the hospital for the past seven years and lately the diagnostic imaging department. The efforts range from training the staff and educating the pathologists to installing new equipment (such as new semi-automated Mindray Biochemistry Analyzer) for the ease and early detection during any medical investigations. Other efforts in the above direction entail support to Fistula program, the two schools operated by HEAL and a variety of other outreach programs; support to Mile, Ethiopia for the establishment of a small pathology laboratory in a Women and Children’s hospital; etc. SHL has also received a request from Sydney University for the establishment of a small microbiology laboratory in Dili, East Timor. Mostly, the efforts are falling under the ‘The Sonic Healthcare Catalyst Program’.

As per the opportunities in the coming years, the Company believes that there exists a strong growth potential. Its pathology business appears to now proffer gains in view of emerging technologies and demand for diagnostics going-up. The Company further confirmed that it does not intend to expand its diagnostic imaging or other businesses outside Australia as of now. With regards to the Company’s guidance for FY15, we note that SHL expects to grow EBITDA by approximately 5% over the 2014 level on a Constant Currency basis while the net interest expense is expected to decrease by approximately 10% from the 2014 level.


Clinical Laboratory Process (Source – Company Reports)

The Company has also identified a few bottlenecks in evaluating its future prospects. Some of these entail variations in revenue and earnings based on fluctuation in exchange rates; changes in regulations in healthcare sector; loss of a license or authorization required to operate any particular business; heightened competition; maintaining relationship with referring practitioners; and risk of rising interest rates which may impact funding and debt facilities. The Company states that SHL’s internal exertions make it capable of mitigating such risks to an extent, depending on the nature thereof.
 

Sonic Healthcare across the Globe (Source – Company Reports)

SHL’s recent selection by Alberta Health Services for an exclusive due diligence and negotiations in relation to a long-term contract for the provision of lab services in Edmonton, Alberta, Canada appears to bring a strategic win. The Company has secured a tender worth at least C$3bn over 15 years. It is anticipated that SHL may take some time to start providing its services.


Sonic Healthcare Daily Chart (Source - Thomson Reuters)

Given the entire situation, we still believe that the stock is expensive at its current price and would review the same at a later date.

 
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