F&P Healthcare
Recommendation
Fisher & Paykel Healthcare’s revenue for the half year to 30 September (it has a 31 March year end) grew 6% to NZ$267m. Net profit jumped a far more impressive 18% to NZ$33m (even higher in constant currency terms). An interim dividend of NZ 5.4 cents was declared (ex date 27 Nov 12), in line with last year. Non-NZ shareholders will also receive a bonus 0.9526 NZ cents per share in lieu of New Zealand input tax credits.
Half-year to 30 Sep | 2012 | 2011 | Change (%) |
---|---|---|---|
Revenue (NZ$m) | 266.9 | 252 | 6 |
Gross margin (%) | 54.3 | 52.5 | 180bp |
R&D expenses (NZ$m) | 21.3 | 19.9 | 7 |
Net profit (NZ$m) | 33.3 | 28.3 | 18 |
EPS (NZ cents) | 6.2 | 5.4 | 15 |
DPS (NZ cents) | 5.4* | 5.4 | n/a |
Divisional sales | |||
Respiratory & acute care (NZ$m) | 142.9 | 131.4 | 9 |
OSA products (NZ$m) | 114.2 | 113.6 | 1 |
Balance sheet | |||
Gearing^ (%) | 37 | 33 | 400bp |
Net debt (NZ$m) | 134 | 103 | 30 |
^Net debt to equity | |||
*Non-NZ shareholders receive a bonus 0.9529 NZ cents per share. |
F&P Healthcare’s Respiratory and Acute Care division—which sells breathing devices for use in hospitals—contributed most of the headline growth, with sales up 9% to $143m.
The Obstructive Sleep Apnoea Products division grew sales 1% to NZ$114m, with high-margin mask sales rising 5%. Continuous positive airway pressure (CPAP) machine sales remained sluggish, falling around 2%, as sales of the newer ICON machines failed to offset falling sales of the older Sleepstyle machines. This is in contrast to industry leader ResMed where sales increased 8% over the equivalent half.
Funding a new multiple purpose building near Auckland and a plant in Mexico means net debt to equity remains well above the company’s target range of 7%-20% (namely 37%). Shareholders shouldn’t expect an increase in dividends until debt returns to the target range.
These developments also absorbed the company’s free cash flow for the half. We’d expect debt to fall and free cash flow to rise significantly in the coming periods now that these large projects are complete. The Mexican plant is already helping lower costs and boost margins.
The share price leapt as much as 5% following the result announcement and is now up 7% since How to profit from sleep apnoea from 11 Oct 12 (Hold – $1.82), and F&P Healthcare remains a comfortable HOLD.