The Sonic Healthcare Limited (ASX: SHL) share price could fall this morning after the company released its annual results for the year. Here's what you need to know:
- Revenue grew 1% to $5,100 million
- Net profit after tax (NPAT) fell 5% to $427 million
- Earnings of 102 cents per share
- Dividends of 77 cents per share, up 4.5%
- Outlook for 6%-8% earnings before interest, tax, depreciation and amortisation (EBITDA) growth in 2018 (assuming constant currency)
- Outlook for continued acquisitions
So what?
A reasonable year for Sonic, which was affected by negative currency movements. On a constant-currency basis, revenue and profit grew 5.8% and 4.4% respectively. For the most part, the international division of Sonic uses 'natural hedging' where they earn sales and hold debt in the local currency. If an investor takes the long-term view that currency fluctuations typically 'wash out' over time, the earning power of Sonic's business in its local jurisdictions is not affected.
Sonic is expecting another strong year in 2018, with no major regulatory changes expected and the company's major capital expenditure projects now complete. Management's growth forecasts also exclude the potential for acquisitions, suggesting that there could be future growth from these in the future. However, Sonic's debt has increased modestly due to recent acquisitions, so future purchases may be on a smaller scale.
Now what?
Sonic is priced at about 23x earnings which is high for a multi-billion-dollar company growing at a modest rate. Investors are enamoured of its apparent defensiveness, international diversification, and ability to grow both organically and via acquisition. Sonic is a good company but I would prefer it to be cheaper before considering a purchase.
