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Sonic Healthcare Limited wins major Canadian contract: What you need to know

Depending on where in Australia you’re from, you may not be immediately familiar with Sonic Healthcare Limited (ASX: SHL), Australia’s largest pathology services provider and the company behind familiar brands like Queensland X-Ray, Sullivan Nicolaides Pathology, Douglass Hanly Moir Pathology, and more.

You may also not know that Sonic is a globally diversified company and, while it earns a majority of money in Australia, future years could see that ratio swing way in favour of overseas earnings.

Which, I’m sure you’ll agree, is great news in the new era of a weaker Aussie dollar.

So before we get on to exactly what Sonic’s new Canadian contract means for the company, we need to put it in context.

Here’s what you need to know:

  • Very successful track record of growing the company through a strategy of ‘bolt-on’ acquisitions and using scale to achieve cost efficiencies and market share
  • From the 2014 preliminary final report (all figures are statutory revenue)
  • 9% of revenue earned from medical centres and occupational health in Australia
  • 9% of revenue earned from medical centres and occupational health in Australia
  • 11% of revenue earned from imaging ‘in Australia and NZ’
  • 1% of revenue earned from NZ pathology
  • 29% of revenue earned in Europe (UK and Eurozone)
  • 21% of revenue earned in USA
  • 29% of revenue earned from Australia pathology
  • ‘Natural hedging’ strategy sees debt collected in local currencies where possible; reduces AUD vs foreign currency risk and also contributes to major changes in statutory revenue figures vs constant currency revenues

With a total revenue of $3.913 billion (constant currency $3.652 billion), what does $200 million in Canadian Dollar revenue p.a. mean for Sonic?

Initially, a 5.1% increase in statutory revenue – not to be sneezed at.

But the long-term effects are sure to be greater.

For starters, a 15-year contract (with option for extension) is a big deal, and it’s sure to get Sonic noticed by other providers in Canada.

It provides plenty of opportunity to break new territory, as well as scope out competitors for synergistic acquisitions of the kind Sonic likes so much.

While Sonic has risen roughly 3% since the announcement it continues to represent excellent long-term value, and if the company can create success in Canada the way it has in Europe and America, this latest announcement should reflect yet another ‘buy’ signal for long-term investors.

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Motley Fool contributor Sean O'Neill doesn't own shares in any company mentioned.

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