Cochlear Limited (ASX: COH) has released its FY19 report, is it time to buy shares?
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 Steady Growth
Cochlear reported that its sales revenue increased by 7% to $1.45 billion, or 2% in constant currency terms.
However, services revenue rose by 20% – and now represents 30% of revenue – and Cochlear implant revenue grew by only 2%. The low implant revenue growth was due to the fact that Cochlear implant units fell by 3% to 34,083 with developed markets in line with FY18 while emerging market volumes declined.
A worry was that a competitor product launch caused a loss of market share in the US and Germany. But, growth returned to normal after the launch of the Nucleus Profile Plus series cochlear implant in Europe in mid May and the US in late June.
Cochlear revealed that its EBIT rose by 6% to $370.1 million, or 5% on a constant currency basis.
Cochlear revealed that its statutory net profit increased by 13% to $276.7 million, which includes $10.8 million of a non-cash net gain from the revaluation of its innovation fund investments. Excluding the revaluation, underlying net profit rose by 7% to to $265.9 million.
The market was expecting a net profit of $269 million. So the underlying profit was lower than expected, but the reported profit was higher.
Cochlear Dividend
The Cochlear Board decided to increase the final dividend by 9% to $1.75 per share, bringing the total dividend to $3.30 per share – an increase of 10%.
Is The Cochlear Share Price A Buy?
Cochlear has predicted that underlying net profit in FY20 will be $290 million to $300 million, which would be an increase of 9% to 13%. Not bad for a such a large business.
The Cochlear share price is up 1% in response to this report, but it’s valued at 42 times the 2019 financial year earnings. For me, this is too expensive for a growth rate that’s only high single digits or low double digits. For growth I would rather think about the rapidly growing businesses in the free report below.
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