A Company That Has Turned the Tide Amidst Pandemic

The impact of COVID-19 outbreak was felt across sectors and the pandemic has derailed future prospects of several companies. Amidst these worries, here is the company which has managed to sail through. The market presence and stable business prospects are expected to further help the company. This company in the healthcare space has consistently maintained margins and evaded all the storms it has faced over the years. The company possesses a robust balance sheet which provides headroom for future growth prospects.

Fisher & Paykel Healthcare Corporation Limited (NZX: FPH) has proven its resilience over the past years. The company’s revenue in FY 2020 was supported by growth in usage of its Optiflow^TM nasal high flow therapy, demand for products to treat patients having coronavirus, as well as robust hospital hardware sales across the year. While many companies were affected as a result of COVID-19 outbreak, it seems like FPH has managed to dodge the impact.

Fisher & Paykel Healthcare Corporation Limited

Summary

• For Hospital product group, which includes products utilised in respiratory, acute as well as surgical care, operating revenue witnessed a rise of 25%, or 21 percent in CC, to $801.3 million in FY 2020.
• There was a growth of 15% in the final dividend to 15.5 cents per share.
• The company is anticipating capital expenditure for FY 2021 to be at ~$160 million.

FPH has been playing a key role in the middle of a worldwide pandemic. The company has stepped up to the challenge, going above and beyond to deliver. North America is the biggest market for the company and contributes 45 per cent to the total operating revenue. The second biggest market of the company is Europe and it contributes 29 per cent to the total operating revenue.

Segmental Operating Revenue (Source: Company Reports)

Over FY16 to FY20, the company has grown its revenue to $1,263.7 million from $815.5 million. During the same period, gross profit increased to $835.8 million from $521.7 million, and profit after tax reached $287.3 million from $143.4 million.

Financial Performance (Source: EODHD/Others (Thomson Reuters))

The company registered CAGR of 18.97 per cent over the period of FY16 to FY20 in the bottom line and, during the same time, the company registered CAGR of 11.57 per cent in the top line. CAGR in the top line reflects that the company is possessing decent capabilities to garner revenues which could help it in further strengthening its financial footing.

Robust Balance Sheet and Good ROE Can Support FPH

At 31 March 2020, the company’s net cash figure stood at $42.2 million and gearing stood at -4.3%. The company stated that gearing was within the target range of -5% to +5%. It can be said that the company is in a better position to withstand adverse economic changes, volatile interest rates, and recessions.

The company’s ROE stood at 39.3 per cent in FY20 and has improved significantly from the levels of FY19. In FY19, ROE stood at 34.8 per cent. This clearly shows that the company has been providing better returns to its shareholders.

Understanding R&D Expenses of FPH

Medical equipment companies heavily rely on R&D, as it is one of the major factors that help the company to drive future growth. R&D expenses contributed about 26 percent to the total operating expenses in FY20.

The company has consistently proved in the past that the R&D expenses are not going in vain. Due to these expenditures, the company is able to create and deliver its high-value products throughout the globe.

R&D Expenses As Part of Total Expenses (Source: Company Reports)

Road Ahead

For first three months of FY 2021, the company’s Hospital product group growth continued to accelerate, with hardware growth of more than 300 percent, and hospital consumables tracking at over a one-third increase, as compared to the same period of the last year.

Because of significant uncertainty in the extent as well as duration of the impact of coronavirus on global demand for the products, the company has made some assumptions so that guidance for FY 2021 can be provided. As a result, the guidance is provided on the basis that global hospitalisations because of coronavirus will peak for the first quarter, as well as hospitalisations for respiratory-related illnesses and OSA diagnostic activity steadily return to normal by the end of 1H. The company expects the full-year operating revenue for the 2021 financial year to be ~$1.48 billion, and net profit after tax at around $325 million to $340 million.

FPH Released Full Year Results

For the 12 months ended 31^st March 2020, the company reported operating revenue of $1.26 billion, up by 18 per cent over last year, or 14 per cent in CC (constant currency). NPAT stood at $287.3 million, up 37 per cent over the previous year, or 30 per cent in CC.

The company stated that previous dividend policy has been expanded into the broader capital management policy. The company has also decided to pay a final dividend of 15.5 cps, an increase of 15 per cent as compared to the final dividend last year.

Full Year-Financial Results (Source: Company Reports)

The company’s activities expose it to several financial risks like market risk (including currency risk and interest rate risk), liquidity risk as well as credit risk. The company operates internationally, and it is exposed to foreign exchange risk arising from various currency exposures, mainly US dollar, Euro, Japanese yen (JPY) as well as Mexican peso (MXN). However, foreign exchange risk is being hedged in accordance with treasury management policy.

On July 31, 2020, the stock price of FPH ended the session at NZ$36.000 per share, reflecting a rise of 1.27% on an intraday basis. In the span of 9 months, the stock witnessed a rise of ~85.73% while, in the span of past one year, it rose by ~117.43%.