Sonic Healthcare

Sonic Healthcare’s first half result was solid, with no significant surprises. Revenue rose 9% to $1,642m, while net profit rose 6% to $143m. The currency again had a depressing affect on revenue, although to a lesser extent than in previous periods. An unchanged interim dividend of 24 cents was declared (estimated ex date 1 Mar), franked to 35%.

Most divisions did well, with Australian pathology showing market share gains and a recovery in margins over the previous period, which was beset by regulatory uncertainty. Management also reported strong revenue growth and margin expansion in Germany. Even the formerly troubled Australian radiology division reported a 6% increase in profit. Only the US business underperformed as weak employment and a hospital bankruptcy hit revenues and margins.

Managing director Colin Goldschmidt addressed several of our concerns from Global worries weigh on Sonic from 20 Dec 11 (Long Term Buy – $11.32). He poured cold water on suggestions US insurance companies might attempt to reduce payments following cuts to US Medicare funding. He was also confident that a move to a national system of healthcare funding in Germany would be ‘revenue neutral’ for the company.

Debt levels were a little higher than expected, mainly because Sonic spent $132m on acquisitions during the period, including 22 medical centres. Interest cover declined from 7.5 to 6.1 times as interest expense rose.

Sonic is on target to meet its profit guidance of growth in earnings before interest, tax, depreciation and amortisation (EBITDA) of 10-15% in 2012 (on a constant currency basis). The company’s defensive business remains an attractive one and, with the stock down slightly since 20 Dec 11, it remains a LONG TERM BUY.

The model Growth portfolio owns shares in Sonic Healthcare.