Cochlear Limited

Considering All Positive Factors have been Discounted at Current Juncture: Cochlear Limited (ASX: COH) is a mid-cap healthcare company with the market capitalization of circa $9.66 Bn as of December 27, 2018. It was founded in more than three decades ago in Australia. The headquarter of the company is situated in Sydney, Australia and it is being currently headed by Mr. Diggory William Howitt – the Chief Executive Officer (CEO), MD, and Executive Director. Recently, the company has appointed Mr. Abbas Hussain as a non-executive Director to the Board, effective from December 1, 2018. On the other hand, the company has done a strategic investment of A$21 Mn in Nyxoah S.A. to generate a decent return in the long run as the group actively monitors the market for novel technologies and implantable devices that have long-term leverage on its core businesses. Nyxoah S.A is a medical device company who has a vision of becoming a market leader in obstructive sleep apnea (OSA) therapy. On the analysis front, the company recorded FY18 Net margin of 18.5% which is broadly in line with the industry median, signifying the efficiency of the company in converting the revenue to profit. Over the years, the company has also generated a positive return of shareholder’s fund with ROE at 43.7%, higher than the industry average of 26.7%.

In FY18, the company has achieved a strong financial position. The company had reported a net profit of $246 million, an increase of 10% over the $223.6 million recorded in the corresponding period in 2017 which is within the guidance range of $240-250 million. The company has continuously delivered its top line and bottom-line growth over the period on the back of its strategic investment approach in sales and marketing activities to build an awareness of its product mix in the competitive market. Further, the investment in R&D activity continues to strengthen its leadership position through the development of market-leading technology. Throughout the year, the company had made steady progress with the successful launch of the Nucleus 7 Sound Processor and Baha SoundArc. In FY18, Cochlear had reached a milestone by selling its 500,000 implants sale on the back of the growing number of people hear with one or two of its implantable devices. The company also made several small investments in early-stage innovation that seek to enhance or leverage their R&D in the coming years.


Financial History (Source: Company Reports)

For FY19 outlook, it is anticipated that the company will deliver a net profit of around $265-275 million. The company is expecting to show uninterrupted growth in the business in FY19 due to significant investments made by the company in product development and market growth initiatives over the previous few years. In developed markets, the company is also expecting a sustainable growth, which constitutes around 80% of cochlear implant revenue. Emerging market growth rates over time continue to be strong. Meanwhile, the share price of the company has shown a negative return of 16.95% in the past three months as on 24 December 2018, and it is trading towards a lower level. Although there are numerous positive factors that would ensure better value to shareholders, we presume that at the current juncture, the stock price has discounted all the positive factors. Hence, we suggest to investors that they should wait for a few more trading sessions to get the better levels for entry.
 

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