Half-yearly results are a good opportunity to review how companies are tracking towards meeting your expectations for the full year. The recent release of Sonic Healthcare Limited's (ASX: SHL) interim results shows a company in good shape, however for a company priced for strong growth results appear somewhat lacklustre.
On a constant currency basis compared to the previous corresponding period (pcp) revenues gained just 4.4% to $1.772 billion. Pleasingly, ongoing synergies and cost-out initiatives helped to expand margins by 25 basis points leading to net profit after tax (NPAT) growth of 9.6% to $165 million. On a per share basis earnings increased 7.9% to 41 cents per share (cps).
While the 'underlying' constant currency earnings were good, the headline reported results were even better thanks to a tailwind from favourable currency movements; on this basis revenues increased by 11.9%, NPAT by 17.7% and EPS by 16.1% to 44 cps.
The strong reported earnings result allowed for the board to raise the interim dividend by 8% to 27 cps; assuming a similar increase in the final dividend then consensus forecasts for a total of 68 cps in dividends look reasonable. Based on the current share price this equates to a forecast dividend yield of 4%.
Like its global healthcare peers Ramsay Health Care Ltd (ASX: RHC), CSL Limited (ASX: CSL) and Cochlear Limited (ASX: COH), Sonic has a diversified revenue base. During the half the company earned 30% of revenues from Australian pathology, 22% from the USA, 17% from Germany and 11% from imaging. Other countries and the IPN division made up the balance.
Foolish takeaway
Management provided guidance for full year EBITDA of approximately $682.6 million on a constant currency basis – equating to a 5.5% improvement on financial year (FY) 2013. Sonic should benefit from a lower interest expense and currency for the remainder of FY 2014; for these reasons one analyst consensus forecast has earnings per share increasing to 97.9 cps. With the share price at $16.88, this implies a forward price-to-earnings ratio of 17.2. In comparison, the average multiple for FY 2014 of companies in the S&P/ASX 100 Index (Index: ^AXTO) (ASX: XTO) is about 14.7.
