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Mid-Cap

Sonic Healthcare Ltd + Blackmores Ltd + Iress Ltd - Are these good on your pocket?

October 21, 2015 | Team Kalkine
Sonic Healthcare Ltd + Blackmores Ltd + Iress Ltd - Are these good on your pocket?

Blackmores Limited



Enhancing contribution from Asia: Blackmores Limited (ASX: BKL) reported a revenue growth of 36% year on year (yoy) to $471.6 million in FY15, mainly driven by the Asian business growth. The group’s Asia revenues rose by 26% yoy to $84.0 million. Meanwhile, Blackmores Malaysia sales improved by 10% yoy while it’s EBIT rose by 22% to $3.3 million. But, Thailand business performance was under pressure, wherein its revenues and EBIT fell by 7% and 27%, respectively, on a year over year basis. On the other hand, the group’s China revenues delivered solid growth during the period, driven by the Wholly Foreign Owned Enterprise which was formed in last year. BKL leveraged the free trade zones opportunity in China and secured a license to directly trade within the zone. As a result, BKL Chinese shoppers enhanced through Australian retailers. Including China sales, Asian consumers added over $150 million to the firm’s sales during the FY15. The group enhanced its net profit after tax by 83% yoy to $46.6 million during the period, driven by its Australia business which improved its profitability by 88% yoy while sales rose by 43% yoy to $317.4 million.


Reported stellar Fiscal year of 2015 performance (Source: Company reports)

Stock Performance: BKL shares delivered solid returns this year, rising 279.23% returns (as of October 21, 2015) in this year to date. The group intends to continue its investments in Asia as well as focusing on innovation by leveraging its expertise. On the other hand, the recent rally in the stock has placed the stock at expensive valuations with the P/E at over 49.3x and BKL has an annual dividend yield of just 1.52%. Accordingly, we put an “Expensive” recommendation on the stock at the current price of $140.19.

 
BKL Daily Chart (Source: Thomson Reuters)
 

Iress Ltd



Strengthening UK business: Iress Ltd (ASX: IRE) recently acquired Proquote, a trading, market data and connectivity provider; and Pulse, which is a portfolio management software provider for private asset managers, to enhance its expertise in UK. The group bought these firms for £37.6 million and estimates the acquisition to be EPS accretive in 2016. The group also entered into a long-term, strategic partnership with Atom, the first all-digital bank in UK and also the group’s foremost client to implement its IRESS’ Mortgage Sales & Origination (MSO) product latest version. Management reported that its wealth management business demand in the United Kingdom and South Africa is rising and accordingly positioning itself. The group’s operating revenue in the United Kingdom (ex-Enterprise Lending) rose 4.1% yoy but segment profit fell 1.7%. IRE’s South Africa operating revenue improved by 7.4% against 2H14 in local currency terms, and segment profit rose 11.2%. Overall, IRE’s revenues improved by 9% to $173.2 million in the first half of 2015, while the segment profit rose by 10% to $57.5 million, as compared to the second half of 2014. IRESS lately announced that it has been selected by Maybank Kim Eng, a leading investment bank in Asia, as its technology partner for providing multi-asset solutions.

 
Business performance (Source: Company reports)

Stock Performance: The shares of IRE have been under pressure delivering a year to date decline of over 15.12% (as of October 21, 2015), impacted by volatile conditions as well as the group’s substantial dependence on client-driven timetables and long lead times. The stock is also trading at higher valuations with a relatively high P/E of 29.4x. Although the stock has a long term potential, we believe that the stock is trading “Expensive” (on a short term perspective) at the current price of $9.15.

 
IRE Daily Chart (Source: Thomson Reuters)
 

Sonic Healthcare Ltd.

Focusing on building international business: Sonic Healthcare Limited (ASX: SHL) reported a revenue increase of 7.3% yoy to $4,201 million in fiscal year of 2015, in spite of tough Australian laboratory market conditions and driven by accretive acquisitions coupled with enhanced performance in US, Germany, UK and Switzerland regions, which offset the Australian pathology pressure. The group’s US business also improved during the period, driven by the restructure of CBLPath from which the group achieved a recurring annual savings of greater than US$10 million. Meanwhile, Sonic Healthcare’s European businesses also delivered outstanding performance, with revenues improving by 25% yoy, on the back of three months contribution of joint venture with UCLH and Royal Free coupled with solid private market growth. Sonic Healthcare estimates a 40% improvement in UK revenues during FY16. Management estimates that Sonic’s Medisupport acquisition during July 2015 along with growing Swiss business in Zurich, would further boost its market position in Switzerland. On the other hand, SHL shares corrected over 12.61% in the last three months as the group had lowered its profit guidance before the release of its full year results, and the net profit fell more than estimated by 5.6% yoy to $363 million affected by the Australian collection infrastructure costs. Sonic incurred a Non-recurring costs of over $14 million due to CBLPath restructure costs, New Zealand contract exit costs as well as acquisition costs.


Building international business (Source: Company reports)

Stock Performance: SHL shares are trading at higher P/E of 20.52x as compared to its peers and accordingly we give an “Expensive” recommendation to the stock at the current price of $18.44, and would review the stock at a later date.
 

SHL Daily Chart (Source: Thomson Reuters)

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