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In today’s daily we have covered stock research on Sonic Healthcare(Expensive).
The S&P 500 was up by 5.18 points or 0.25% on Tuesday. U.S. stocks advanced in choppy trading on Tuesday, with the Dow and S&P 500 touching intraday records, as investors attempted to interpret testimony by Federal Reserve Chair Janet Yellen. As investors sought clues on the timing of the Fed's first interest rate increase since 2006, Yellen told a congressional committee it is preparing to consider hikes "on a meeting by meeting basis"in a subtle change of emphasis. The S&P/Case Shiller composite index of home prices in 20 metropolitan areas gained 4.5 percent in December above the 4.3 percent forecast and 4.3 percent in November.
JPMorgan Chase climbed 2.5 percent after the bank told investors it aims to save about $1.4 billion in annual expenses. It also forecast about 10 percent core loan growth in 2015. Toll Brothers rose 4.1 percent, helping to lift the PHLX housing index The largest U.S. luxury homebuilder reported a higher-than-expected quarterly profit and raised the low end of its full-year home delivery forecast. The nearly six-year bull run in stocks has been driven in part by the Fed’s easy monetary policy, which helped boost the appeal of stocks versus competing assets, such as bonds. The Fed ended its bond-buying program last year and is now considering an increase in rates.
J P Morgan Daily Chart (Source – Thomson Reuters)
S&P ASX 200 was up by 19 points or 0.32% on Tuesday and closed at 5927.0 points. BHP Billiton rallied 2.9 per cent to close at $33.06 after it posted a $5.35 billion underlying attributable profit for the first half of the financial year, beating the Bloomberg forecast of $4.89 billion. QBE shares bounced back from an initial fall in a remarking turnaround to close up 7.2 per cent to $12.45. It posted a $US742 million profit during 2014, an improvement from the previous year's $US254 million loss.
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Marine services business MMA Offshore took a hit from its soft outlook due to the plunging oil price, dropping 11.7 per cent to close at $0.87,despite posting a 55.8 per cent rise in net profit after tax to $37.7 million. It was the worst-performing stock in the ASX 200. Flight Centre was the best-performing stock in the ASX 200, climbing 12.1 per cent to $39.50, after posting an underlying profit before tax of $137.6 million, in line with the lowered guidance issued in December. The strong gains in BHP and QBE were partially offset by a 2.7 per cent fall in Wesfarmers, trading ex-dividend to $45.46, and a 0.6 per cent fall in Telstra to $6.59. Meanwhile, Woolworths share price gained 3 per cent to $34.32.
Flight Centre Daily Chart (Source – Thomson Reuters)
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Sonic Healthcare Video
Stock Of the Day - Sonic Healthcare (Expensive)
Sonic Healthcare (SHL) released its 1H15 result indicating weak progress but appearing in line with expectations given the guidance provided in November 2014. The results entailed robust operating performance in Germany and UK along with a lift in Australian imaging margins. Operations in the U.K. and Switzerland produced revenues at 9% and 6% respectively. Germany yielded organic growth of 6% or 21% including acquisitions.
However, poor earnings growth in Australian pathology (growth of just 2.8% to $579 million in the first half of 2014-15) and weak volumes in the US (revenue growth of just 1% in the US pathology to $430 million) were the setbacks. With regards to Australian pathology, Medicare fee cuts on Vitamin D testing was illustrated as the reason behind the downgrade. Nonetheless, pathology volume growth strengthening has been sensed in Australia and the US. For the US, the Company conveyed that vigorous restructure of CBLPath is under way which has otherwise led to negative earnings growth.
Results Summary (Source – Company Reports)
The interim dividend has been increased by 7.4%. As per SHL, it is on track to achieve full year guidance of 2-4% EBITDA growth after 7 months of trading. SHL believes that currency movements will help boost reported results in second half. The Company aims to emphasize on cost-outs and efficiency gains. It also expects a continual decrease in interest expense. More specifically, the FY15 interest expense is expected to decrease 10-15% as opposed to FY14 on a constant currency basis. The geographic diversification is expected to expand with the announcement on SHL being selected as preferred proponent to provide laboratory services in Edmonton, Alberta, Canada.
The Company reported for increased net debt owing to weaker AUD. Further, available headroom of about $465 million (before interim dividend payment) has been declared. As per the outlook, SHL intends to witness strong volume growth in key markets with other aspects such as resolution of Australian regulatory issues, cost initiatives, and momentum in European businesses in place. Further, launch of Sonic Genetics and pipeline of sizable acquisitions appear to steer growth. Another favorable factor may be the government outsourcing trend in Alberta and UK.
Revenue Split 1H FY15_Blue-shaded segments represent Laboratory medicine/pathology (Source – Company Reports)
The gross cash conversion of 93% looked appealing. However, a 25% rise in property, plant and equipment investment (new laboratories) and intangibles affected free cash flow. We see medium-term benefits given the volume growth recovery in the US and Australia, and from the UCLH/Alberta contracts. Uncertainty still prevails around the potential with regards to deployment of Approved Collection Centres with continuing surge in operating costs; approval of the revised Federal Government GP co-pay into legislation and effect thereof on pathology referrals; and sustenance of pathology cost growth.
Sonic Healthcare Chart (Source - Thomson Reuters)
We still feel that the stock is overvalued at the current price of $19.55, and accordingly, will review the same at a later date.
Team Kalkine
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