Sonic Healthcare Limited

SHL Details

Q1 FY21 Trading Update: Sonic Healthcare Limited (ASX: SHL) is involved in the provision of medical diagnostic services and administrative services and facilities to medical practitioners. The market capitalisation of the company stood at $16.95 Bn as on 15^th October 2020. Recently, the company provided a trading update for September 2020 quarter, wherein, it stated that SHL continues to play a crucial role in fighting the COVID-19 pandemic, with the help of its laboratories in Australia, the USA and Europe. During Q1 FY21, the company reported revenue amounting to $2,144 million, reflecting a rise of 29% and EBITDA for the period amounted to $580 million as compared to $340 million in Q1 FY20. During the quarter, most of the company’s divisions witnessed a rise in base business revenues.

Key Financials (Source: Company Reports)

Decent Growth in Topline: For the year ended 30^th June 2020, SHL reported revenue amounting to $6,860 million, reflecting a rise of 11%, which was supported by Aurora Diagnostics’ acquisition (completed 30 January 2019) and currency exchange rate movements. In addition, the company witnessed a growth of 7% in underlying net profit to $552 million. Underlying EBITDA for the period amounted to $1,109 million.

Outlook: The company seems to be well-positioned for future growth, supported by well-established brands, leading market positions, embedded Medical Leadership culture, as well as a strong balance sheet. However, the outlook is sensitive to fluctuations in base business and COVID-19 testing revenues. SHL has scheduled to conduct its Annual Shareholders Meeting on 12^th November 2020.

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (Illustrative)

Price to Earnings Multiple Based Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: SHL managed to close FY20 with a healthy balance sheet comprising liquidity of $1.4 billion. As on 30^th June 2020, the cash balance of the company stood at $1,230,149 as compared to $736,646 as on 30^th June 2019. On the technical analysis front, the stock price of SHL has a support level of ~$32.845 and a resistance level of ~$37.993. We have valued the stock using the P/E multiple based illustrative relative valuation method and arrived at a target price with an upside of high single-digit (in percentage terms). For the purpose, we have taken peers such as Ramsay Health Care Ltd (ASX: RHC), CSL Ltd (ASX: CSL), Resmed Inc (ASX: RMD), etc. Thus, considering the decent performance in Q1 FY21, a key role in dealing with COVID-19, and a strong balance sheet, we give a “Hold” recommendation on the stock at the current market price of $36.300 per share, up by 2.253% on 15^th October 2020.

SHL Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Pro Medicus Limited

PME Details

Signing of Significant Deals: Pro Medicus Limited (ASX: PME) is a leading health imaging company that provides a range of radiology IT software and services to hospitals, imaging centres and health care groups worldwide. The market capitalisation of the company stood at $3.02 Bn as on 15^th October 2020. Recently, the company notified that its wholly owned subsidiary, Visage Imaging GmbH, has inked a 7-year contract with Ludwig-Maximilians-Universität with the worth of $10 million. Under the terms of the contract, there will be the implementation of PME’s Visage 7 technology in all LMU Klinikum’s radiology. This contract supports the company in increasing its footprints in the European hospital segment. Previously, the company has also signed a $25 million deal with NYU Langone Health to implement Visage 7 technology across all of NYU Langone’s radiology and subspecialty imaging departments.

Decent Growth in Topline: For FY20, the company reported total underlying revenue of $56.8 million, up 23.9% on the previous year, despite the restrictions of COVID-19. The topline growth was primarily driven by the increase in transaction revenue in North America and increased RIS sales in Australia. Reported profit after tax for the period stood at $23.08 million in FY20, up 20.7% from the previous year. At the end of FY20, the company had cash reserves of $43.4 million, up 34.3% on the previous year.

Revenue Breakdown (Source: Company Reports)

Outlook: Going forward, the company is focused on increasing its product pipeline. In addition, the company would also be focused on the growing North American footprint.

Valuation Methodology: Price to Cash Flow Multiple Based Relative Valuation (Illustrative)

Price to Cash Flow Multiple Based Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: The company managed to close FY20 with strong balance sheet comprising nil debt. The company declared a fully franked final dividend of 6 cents per share. On the technical analysis front, the stock price of PME has a support level of ~$24.557 and a resistance level of ~$32.194. We have valued the stock using the P/CF multiple based illustrative relative valuation method and arrived at a target price with an upside of mid-single-digit (in percentage terms). For the purpose, we have taken peers such as Nanosonics Ltd (ASX: NAN), Cyclopharm Ltd (ASX: CYC) and Cochlear Ltd (ASX: COH). Thus, in light of the recent signing of deals, decent growth in topline and outlook, we give a “Hold” recommendation on the stock at the current market price of $31.230 per share, up by 7.652% on 15^th October 2020.

PME Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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