I had a gut feeling the market would react the way it did to today’s profit announcement given the broker consensus profit forecast for FY18 was $248.1M. Only missed by a bit but I guess it’s the price you pay for a high PE and a reputation as a market darling. Nevertheless, COH remains an outstanding company and is well positioned for the future.
A few points from today’s results P&L - Greater volume of Cochlear implant units sold
The unit volume increases were the main driver for cochlear sales revenue increase, would also have liked to have had cochlear price increases as well but at an average cost of $23.5K I would imagine it’s hard to get governments / insurance companies to increase medical rebates for patients.
They don’t seem to be making much head way with the acoustic (bone conduction and acoustic implants) side of the business. On the other hand the service (support) business is rapidly expanding given the recent product rollouts
There is no mention of Russia in the geographic sales mix. Does anyone know why?
- Cost of sales remains relatively flat.
Tight control of costs resulting in a slight improvement in sales margins.
- Trade receivables as a percentage of sales are relatively low at 23%
Converting trade receivables to cash.
- Maintained profit margins at 18%
Balance Sheet
- Reduced current debts
Net gearing ratio is now 12%, they have reduced current debts from $84.7M to $3.7M
Note, I am not disputing COH’s ability to service its debt but being financially conservative I prefer companies with low debt levels.
Balance sheet leverage has gone from x2.09 to x1.89
High ROE
Cashflow
- Cashflow from Operations is larger than Net Profit.
Good quality earnings
- Free cashflow double that of last financial year
No acquisition payment (Sycle)
Guidance - FY19 Net profit guidance of $265M to $275M
Audit points
Trade Receivable $299.1M
Positive COH seems to have tightened their recovery of amounts owed to the company when compared with last year.
For example those amounts due past 361 days is $6.3M rather than $20.2M at the last financial year. Need to see if this is an ongoing trend in future years
Patent Dispute
Negative Uncertainty surrounding the patent dispute
Provision for patent dispute liability maybe insufficient at $21.3M
Positive Damages to be announced by 31st August 2018
Hopefully fully covered by insurance
If the decision goes against COH I think any negative impacts to the share price may represent a buying opportunity.
Product Warranties Positive $18.4M expensed in servicing product warranties.
This is roughly 1.8% of implant sales excluding services revenues. Amazing! Given the new product launches
Is there anyone with experience or knowledge of the cochlear implant and Baha system that can attest to its quality or useful life?
COH Price at posting:
$192.75 Sentiment: Hold Disclosure: Held
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