Cochlear Limited (ASX: COH) shares are down 7.7% after reporting its half year result to December 2018.
Cochlear is one of the world’s leading medical businesses. Cochlear designs, manufactures and supplies the Nucleus cochlear implant, the Hybrid electro-acoustic implant and the Baha bone conduction implant. Graeme Clark invented the first device in 1982, allowing first-user Graham Carrick to hear for the first time for 17 years. Some of the most recent modifications allow users to play sound from their phone directly into their implant.
Cochlear’s HY19 Result
Cochlear’s sales revenue increased by 11%, or 6% in constant currency terms, to $711.9 million. EBIT grew by 10% to $177 million (click here to learn what EBIT means), or 11% in constant currency terms.
Net profit after tax (NPAT) increased by 16% to $128.6 million and earnings per share (EPS) grew by 16%.
A sizeable part of the growth was driven by a 5% increase in Cochlear implant units to 16,740. Another highlight was the Services business which grew revenue by 28%, with sound processor upgrade revenue increasing by 26% in constant currency terms.
Cochlear CEO Dig Howitt commented on the Services segment, “The Services business continues to grow in importance as our recipient base grows, now representing almost 30% of sales revenue.”
However, Cochlear said that its business in the US experienced a lower rate of growth with a loss of share due to a competitor product launch. Western European growth was affected by a combination of factors including health budget constraints in a few markets and increased competitor activity, particularly in Germany.
Cochlear dividend
Cochlear increased the interim dividend per share by 11% to $1.55 per share, representing a reduced dividend payout ratio of 70%.
Cochlear management comments
Mr Howitt said: “Over the next few years, we have a number of large long-term investment projects including the development of our China manufacturing facility, with the construction phase expected to be complete by the end of FY20, and investments in IT platforms to strengthen our connected health, digital and cyber security capabilities.”
Is Cochlear a buy?
Cochlear is maintaining its net profit guidance of $265 million to $275 million, which would represent growth of 8% to 12%. Revenue growth will be driven by the Services business.
Cochlear is a high quality global healthcare business and I think it’s probably worthy of a premium to the market due to its recurring revenue and global earnings, but the slowing growth is a bit of a worry. Whilst I would happily have Cochlear in my portfolio, it would need to be at the right price for me, which isn’t today’s value.
If you want ASX businesses that are growing strongly internationally, then the shares in the free report below could be better options.
2 ASX shares growing much faster than Cochlear
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