Sonic Healthcare: Result 2016

Strong growth in Australia and the UK produced a record profit for this pathology operator.

Pathology network Sonic Healthcare has posted a decent full-year result. Revenue rose 20% to $5.1bn or 14% after removing the effect of currency fluctuations. Most impressive, though, was that revenue from the Australian operations – Sonic’s largest division, accounting for a quarter of total revenue – increased 6% for the year to June. Medicare changes and price cuts negatively affected fees and volumes during the year, so any growth in Australia is hard won.

The company’s US division had organic revenue growth of just 2%. However, Sonic’s European operations performed well, with 6% revenue growth in Germany, 9% in Switzerland and 46% in the UK as a new 10-year contract to provide pathology services to the National Health Service starts to ramp up.

Underlying earnings before interest, tax, depreciation and amortisation (EBITDA) increased 14%, while net profit rose 24% to $451m in constant currency terms. Management expects EBITDA to rise 5% in 2017, with the potential for new acquisitions to add to that. We’re increasing our price guide and intend to review the company and our valuation in detail after reporting season. For now, though, the stock currently sports a price-earnings ratio of 22 and we're sticking with HOLD.