Pathology and radiology provider Sonic Healthcare has been one of the most recommended stocks from broking analysts in recent months as they have appreciated its defensive qualities in tough economic times.
Like rivals such as Primary Health Care, analysts have appreciated its solid management and specialisation in the government controlled health area, where, if you get costs and the processes right, solid earnings can be generated over a period of time.
Of course if you get it wrong, as Sigma Pharmaceuticals has been doing in the past couple of years, then the company, the share price and shareholders suffer.
Sonic’s strengths might be seen by analysts, but not by investors in the wider market.
The shares are down from a high of well above $16 just over a year ago and yesterday fell 7% to $11.95 after hitting a 52 week low of $11.70 during trading.
They are down from a recent high of just over $14 in late January.
Yesterday Sonic confirmed the support from analysts with a solid first half, and the maintenance of its earnings guidance for the full year to June.
Interim net profit rose 20.5% to $136.5 million and Sonic said its guidance for 2009 remained unchanged since August 21, 2008, with revenue growth expected to be greater than 15%, and earnings per share growth above 10%, depending on foreign exchange and interest rate movements, and excluding further acquisitions.
It’s a rare company these days that has been able to keep guidance constant for so long as the economy slides and the credit crunch continues to bite on the debt and returns side for many businesses.
Revenue from ordinary activities for the six months to December 31 jumped 27.7% to $1.44 billion.
The company declared an interim dividend of 22c per share, up from 20c in the prior corresponding period.
That in itself has been a rarity as more companies cut or suspend dividends to conserve cash.
Sonic’s CEO and Managing Director, Dr Colin Goldschmidt, said in a statement accompanying the results that the company "has delivered another strong result for the half year, in line with our guidance for the full year, and has shown the resilience of its business against global economic conditions and the current credit crisis.
"A particularly pleasing aspect of this result is the strong organic revenue growth of our laboratory operations. We have clearly taken market share in a number of our key markets, including Australia.
"The efforts of our management teams to identify and capture synergies are also bearing fruit, with strong margin expansion especially in Germany and the USA.”
Dr Goldschmidt added: “Our successful expansion in the USA and European laboratory markets continued during the half year, with several highly synergistic acquisitions completed.
"Sonic’s reputation and model of medical leadership, federation structure and personalised service continue to attract high quality, like-minded laboratories to the Sonic Group, and I am convinced that it is this culture and model, implemented by our more than 20,000 talented and dedicated staff, which drives Sonic’s success."
The company said that "Organic (non acquisitional) revenue growth for the period for Sonic’s pathology operations was very strong at ~7% (excluding forex impacts).
"Sonic’s Australian pathology organic revenue growth was ~8%, representing market share growth versus growth in Medicare outlays of 4.9% for the period.
"Further Australian market share growth is expected in the second half of the year.
"Sonic believes its organic revenue growth in all other countries was at or above the relevant laboratory market growth rates."
Dr Goldschmidt said Sonic did not have debt-related issues.
