Sonic (ASX: SHL) has announced a healthy update this morning, sending its share price higher by 2.5%.
What is Sonic?
Sonic is one of Australia’s largest healthcare businesses, it provides laboratory services, pathology, and radiology services. It is actually the world’s third largest pathology/laboratory medicine company. It has operations in Australia, USA, Germany, Belgium, Switzerland, the United Kingdom, Ireland and New Zealand.
The healthy update
Sonic withdrew its FY20 earnings guidance three months ago due to COVID-19 uncertainty. The lockdowns caused a large fall in patient volumes and revenue.
However, the company has seen revenue stabilise in late April with a recovery during May. In recent weeks the majority of the company has returned to pre-COVID volumes and revenue.
However, base revenue in the US, the UK, Ireland and Belgium are still below pre-COVID levels but there is a positive trend there. Many of Sonic’s businesses also involved with substantial COVID-19 testing.
March 2020 and April 2020 trading results were substantially lower than forecast, but May was stronger than expected – this trend has continued through June to date.
Profit guidance
In FY19 Sonic generated statutory EBITDA (click here to learn what EBITDA is) of $1.075 billion. Sonic’s FY20 underlying EBITDA is expected to be a similar amount, excluding the impact of the new lease accounting standard AASB 16.
However, there is still too much uncertainty to provide FY21 guidance. It will provide another update in August 2020 with the release of the FY20 result.
Sonic CEO Dr Colin Goldschmidt paid tribute to the people within the business: “I wish to thank sincerely every one of our managers and staff, particularly those who sacrificed financially in other ways during the pandemic. The reaction of Sonic’s people to this crisis has been truly inspiring.”
Sonic has proven to be a good defensive business after the initial selloff. After today’s 2% share price rise it’s almost back to where it was before COVID. I’d be happy for it to be a small part of my portfolio, particularly with how low global interest rates are right now.
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Disclosure: At the time of writing, Jaz doesn’t own shares in any of the businesses mentioned.
