Cochlear Limited

Decent Performance in 1HFY19: Cochlear Limited (ASX: COH) is one of the leading implantable hearing solutions providers. It recently posted its H1 FY19 result report wherein its consolidated sales revenue increased by 11% to $711.9 Mn. It was majorly driven by services business which exhibited 28% growth during the same period. Its products such as Nucleus 7 Sound Processor, the world’s first Made for iPhone cochlear implant sound processor and Nucleus Smart App for Android got wide acceptance by its customers. Its net profit increased by 16% to $128.6 Mn in 1H FY19 due to a decrease in interest expense as net debt decreased by circa 16%. Owing to strong cash-inflow, the Board of Directors declared fully franked interim dividend per share at $1.55 an increase of 11% PCP with payment date on April 16, 2019 and record date on March 26, 2019. Besides this, the company has an ongoing patent dispute with contingent liability againstAlfred E. Mann Foundation for Scientific Research (AMF) and Advanced Bionics LLC (AB).

In its recent announcement, Pinnacle Investment Mgmt. group and Hyperion Asset Management group have increased their shareholdings in the company with 5.12% and 5.08% voting rights respectively.


Product & Service Performance (Source: Company Reports)

As per the company’s guidance for FY2019, it expects revenue growth to be driven by the services business, with strong uptake of the Nucleus 7 Sound Processor, particularly in the first half. It expects a lower rate of cochlear implant growth across the developed markets for FY19, however emerging market growth rates over time will continue to be strong with growth rate subject to macro-economic conditions. It has forecasted a weighted average AUD/USD exchange rate of 72 cents for FY19 (77 cents in FY18) and AUD/EUR of 0.63 EUR (0.65 EUR in FY18).    

Stock Recommendation:COH’s share price has generated a negative YTD return of 0.8%. It is currently trading at PE multiple of 37.91x which is higher than the industry PE multiple of 9.4x. It indicates that the stock price is overvalued. On technical analysis front, COH’s share price is trading below 50 DMA (day moving average) and 200 DMA which indicates slight level of softness in the trend.  Hence, we recommend an “Expensive” rating on the stock at the current market price of $178.08 per share (up 2.64% on March 06, 2019).
 

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