Is this ASX 200 Healthcare Player Still a Buy Post a Bullish Run? Sonic Healthcare

Summary

• ASX 200 healthcare company, Sonic Healthcare is playing a crucial role in combating the COVID-19 pandemic in its markets.
• So far, Sonic has performed almost 6 million COVID-19 PCR tests worldwide and continues to increase its testing capacity further to meet the growing need.
• During FY20, underlying revenue of Sonic Healthcare stood at A$6.8 billion, up 11.5%. Underlying net profit rose by 6.5% to A$552 million.
• The Company’s revenue growth rates in July and August 2020 are significantly better than historical rates, boosted by substantial COVID-19 testing volumes.

The share price of healthcare companies is on a watch as they announce impressive full-year results during the current reporting season. Many ASX 200 healthcare players have updated impressive FY20 results despite the challenging condition posed by the COVID-19 pandemic. The promising results have improved optimism in the investor community, which is reflected in the growth in the companies’ respective share price.

The ongoing pandemic has impeded growth and development of many S&P ASX 200 shares. However, it has created opportunities for several healthcare players, particularly for those who are employed with services and products that are used in preventing and treating the infection caused by the novel coronavirus (SARS-Cov-2).

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In this article, we will discuss one ASX 200 healthcare share that witnessed an increase after announcing its FY20 results. Medical diagnostics company Sonic Healthcare Limited’s (ASX:SHL) share price hit a fresh high of A$38.00 during the trading session on 20 August 2020 before settling at A$35.060, up 1.388%. Sonic has a market capitalisation of almost A$16.45 billion. The Company has delivered positive returns of 27.51% and 20.74% in the last three months and on a YTD basis, respectively.

Let us zoom lens on ASX200 healthcare player Sonic:

Sonic Healthcare witnessed revenue growth of 11.5%

Sydney-headquartered medical diagnostics company Sonic Healthcare Limited is engaged in providing primary care medical and laboratory radiology/diagnostic, and medicine/pathology imaging services around the world. The Company operates in Australia, New Zealand, Switzerland, the US, the UK, Belgium, Ireland, and Germany.

Sonic Healthcare is playing a significant role in combating the COVID-19 pandemic in its markets. Throughout the period, facilities of Sonic Healthcare remained staffed and fully operational. Almost 37,000 employees of the Company are operating at the frontline of pandemic response.

On 20 August 2020, Sonic Healthcare updated the market with its results for the financial year 2020 on the ASX.

Highlights from the financial front-

• Underlying revenue for FY20 reported at A$6.8 billion, increasing by 11.5% (excluding AASB 16 impact).
• Underlying net profit rose by 6.5% to reach A$552 million (excluding AASB 16 impact).
• underlying EBITDA (excluding AASB 16 impact) of A$1.109 billion (24 June 2020 trading update: ~A$1.075 billion)
• Final dividend for the FY20 maintained at A$0.51 per share while full-year dividend rose 1.2% to A$0.85.

Highlights from the operational front-

• So far, Sonic has performed almost 6 million COVID-19 PCR tests worldwide, and it continues to rise testing capacity further to meet the requirements of the communities in which the Company operate.
• Sonic Healthcare is well positioned with a strong balance sheet for future growth and development, with well-established brands, leading market positions along with embedded Medical Leadership culture.
• The Company continue to target organic revenue growth, along with synergistic acquisitions, joint ventures, as well as contract opportunities.

Moreover, Sonic mentioned that since year-end, revenue growth rates have been considerably higher than usual, boding well for the FY21. However, it is not sure how long these high growth rates would remain.

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Split Revenue for the fiscal year 2020-

• In the US, FY20 revenue rose by 29%, 21% on constant currency, including extra seven months of Aurora acquisition.
• In the US ~3 million COVID-19 PCR tests performed so far, with market-leading turnaround times, further expansion of testing capacity underway, in collaboration with federal organisations.
• PAMA fee reductions deferred to January 2022 in the US.
• In Australian pathology, during FY20 Sonic Healthcare witnessed 5% organic revenue growth.
• In Australia, more than 1 million COVID-19 PCR tests performed so far that represents almost 20% of national testing.
• Sonic Healthcare disclosed that the National roll-out of total lab automation system (GLP Systems) in Australia had been completed now.
• In Germany, FY20 revenue growth was 10%. Organic growth at constant currency stood at 6%.
• To date, nearly 1.6 million COVID-19 PCR tests performed in Germany, representing ~20% of national testing.
• In Switzerland, Sonic witnessed 14% revenue growth and 5% organic revenue growth in constant currency.
• In the UK, 9% revenue growth was observed and 5% organic growth at constant currency.
• FY20 revenue from Sonic Imaging saw 4% revenue growth and 6% decline in EBITDA.

Outlook 2021-

• Sonic Healthcare is not providing any annual earnings guidance due to COVID-19 related instability.
• Revenue growth rates in July and August 2020 are significantly higher than historical rates, driven by considerable COVID-19 testing volumes.
• In July 2020, base laboratory business revenues were approximately 5% higher than in the previous year in many nations, with negative but increasing growth in the US and the UK.

However, Sonic Healthcare stated that the outlook is dependent on fluctuations in base business and COVID-19 testing revenues. The Company shall provide a market update at its Annual General Meeting on 12 November 2020.

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Bottomline

Amid the current state of COVID-19 turmoil, Sonic Healthcare is well placed with a solid balance sheet for future growth and development, focusing on meeting the diagnostic testing requirements of its communities as well as the wellbeing of its staff. However, due to the ambiguous environment, it is not assured whether the current growth rate will be sustainable or not.