Perhaps the most anticipated first-round match in the ASX World Cup, is today's clash between heavyweights ResMed Inc. (ASX: RMD) and Sonic Healthcare Limited (ASX: SHL) in the healthcare pool.
Pre-match commentary and stats
ResMed makes continuous positive airway pressure machines and masks for the treatment of sleep apnoea. I know for a fact that these machines really improve the quality of life of sufferers, who have often gone undiagnosed in the past. The brilliance of ResMed is that the company does a lot to facilitate diagnosis, which continues to drive growth.
However, when it comes to diagnosis systems, Sonic Healthcare has it in the bag. The main businesses of the company are pathology and radiology – two of the most important medical diagnostic technologies known to mankind. Like ResMed, plenty of Sonic's revenues come from overseas, and there is plenty of room for expansion (and greater efficiencies of scale).
| ResMed | Sonic Healthcare | |
| Market Capitalisation | $7.88 billion | $6.84 billion |
| Forecast FY 14 P/E ratio | 22.4 | 17.5 |
| Forecast FY 14 Yield | 1.84% unfranked | 3.98% partially franked |
| FY 2013 Cashflow Yield | 5.2% | 6.77% |
| Net interest cover | Net cash over $620 million | 8.08 |
Notes: Thompson Consensus Forecasts, and based on last FY reports.
GAME ON
When it comes to price, Sonic looks threatening with a lower P/E ratio and higher cashflow yield than ResMed. However, when you back out the cash, ResMed's ratio drops to under 20, amounting to a timely deflection by a ResMed defender.
However, Sonic's dividend yield is more than double that of ResMed and the pressure proves too much for ResMed's defence.
Sonic scores with a timely strike, past an exhausted ResMed defence!
1 – 0 to Sonic Healthcare
ResMed turns the tables on Sonic when it comes to debt – and fast. Not only is ResMed debt free, but it has a kitty of over $620 million net of debt. Not long after the restart, ResMed equalises the score.
The teams are locked at 1 -1
Sonic Health looks to have strong growth prospects thanks to the ageing population, but so too does ResMed. Indeed, ResMed also benefits from rising obesity, and has plenty of cash to reinvest in itself. Just as Sonic looks to threaten, momentum shifts.
Founder, chairman and old-hand ResMed defender Dr Peter Farrell sends the ball flying to the other end of the field. His own son, CEO and striker Mick Farrell receives it – this, ladies and gentlemen, is a family affair. The younger Farrell combines with COO Robert Douglass for a brilliant one-two. The result of this team effort? A fantastic goal in the final minutes!
ResMed draws ahead, 2 – 1! And there the score stays until the game is won.
