Significantly high COVID-19 test volume and resilient medical...

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Sonic Healthcare Significantly High COVID-19 Test Volume

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Significantly high COVID-19 test volume and resilient medical diagnostic testing services drive 28 percent revenue rise and record $1.3 billion profit result in FY21. 

  • Healthcare services provided to approximately 138 million patients globally in FY21
  • Total of 36 million COVID-19 PCR tests performed to date, and more than 1 million COVID-19 vaccinations in Australia
  • Underlying EBITDA to October 2021 of $991 million, up 16 per cent, compared to the four months to October 2020
  • Revenue up 5 percent to $3,087 million from $2,942 million to October 2021, compared to prior corresponding period
  • Quantitative FY22 earnings guidance not given due to ongoing COVID-19 related uncertainty
  • Base business comprising general laboratory, pathology and radiology services increasingly resilient to impacts of pandemic waves
  • Underlying, long term business growth drivers for healthcare services globally remain unchanged, implying a positive earnings growth outlook for Sonic.

Sonic Healthcare Limited (‘SHL‘ or ‘Sonic‘) is an international medical diagnostics business, with operations in Australasia, Europe and North America. Sonic employs 38,000 staff globally, comprising 1500 pathologists and radiologists and more than 10,000 medical scientists, radiographers, technicians and nurses. Listed on the ASX since 1987, with its headquarters in Sydney, Sonic is the third-largest medical diagnostics company in the world.

AGM Chairman’s Address

The chairman highlighted the 28 percent increase in FY21 revenue driven by an elevated volume of COVID-19 testing, combined with the resilience of the core business, which delivered a record net profit of $1.3 billion, up 149 percent on the prior year. Sonic’s core base medical diagnostic business revenue grew by a respectable 6 percent, on a like-for-like basis, in FY21.

To date, a total of 36 million COVID-19 PCR tests have been performed, while in Australia, more than 1 million COVID-19 vaccinations have been dispensed to the community, through high volume hubs and 200 medical centres. In aggregate, Sonic provided healthcare services to approximately 138 million patients globally in FY21.

Robust cash flow generation, which is typical of mature, large scale healthcare businesses like Sonic, enabled $1 billion of debt to be repaid, resulting in the lowest gearing level in 20 years. Shareholders were rewarded with a 7 percent increase in total dividends for the year of 91 cents, franked to 65 percent. A significant proportion of Sonic’s earnings were retained for future synergistic business acquisitions. Acquisitive growth has been a key aspect of Sonic’s growth strategy for 30 years. The chairman referred to the recent acquisition of Canberra Imaging Group since year-end and indicated that management are presently working on other opportunities.

Trading update for 4 months to October 2021

Sonic did not provide quantitative earnings guidance for FY22 given COVID-19 related uncertainty. This is because revenue growth rates may fluctuate, with both base medical diagnostic and COVID-19 testing volumes potentially fluctuating in different parts of the world as the pandemic evolves. For example, in FY21 when COVID-19 PCR testing in Australia was significantly below its peak, testing volumes in Germany were at a new peak level. Base medical diagnostic business volumes are impacted by social restrictions, lockdowns and reduced out-patient and in-patient clinical activity. COVID-19 testing revenue on the other hand, is impacted by government and health authority policy changes and developments in medical technology such as new testing modalities.

Based on unaudited management financial reports covering the four months to October 2021, Sonic disclosed underlying earnings before interest, tax, depreciation and amortisation of $991 million, up 16 per cent, compared to the four months to October 2020. This positive outcome was achieved on the back of a 5 percent lift in revenue to $3,087 million, up from $2,942 million, in the prior corresponding period.

These numbers suggest that since the pandemic, Sonic’s base business, comprising general laboratory, pathology and radiology services, has become increasingly resilient to impacts of pandemic waves. This resilience is supported by the essential nature of its services, as well as geographical and business diversification, along with decades of investment in infrastructure, equipment and systems. Importantly, the underlying, long term business growth drivers for healthcare services globally, remain unchanged, implying a positive earnings growth outlook for Sonic.

Louis Mosmann

Louis Mosmann is a Private Wealth Client and Research Assistant at KOSEC- Kodari Securities. Louis covers macroeconomic events, global markets and ASX300 company announcements, allowing clients to make more informed investment decisions. Email Louis at l.mosmann@kosec.com.au.

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