Here’s why the Sonic Healthcare Limited share price popped 7.7%

What: While leading global pathology and diagnostic imaging provider Sonic Healthcare Limited (ASX: SHL) didn’t mark its annual general meeting (AGM) address and presentation which was released to the ASX on Thursday as “sensitive”, the market certainly appeared to like what it heard from the AGM with the stock jumping 7.7% by the close of trade.

So What: At the AGM management provided the following trading update:

  • Tracking in line with guidance
  • UK outperforming expectations
  • Sonic’s Australian pathology revenue growth substantially stronger than Medicare market data
  • Imaging market growth subdued, most likely related to uncertainty around Australian Medicare schedule review

Management also reaffirmed its guidance for financial year 2016:

  • Earnings before interest, tax, depreciation and amortisation (EBITDA) between $815 million and $840 million on a constant currency basis
  • EBITDA growth of over 20% on a current exchange rate basis
  • Interest expense to increase by between 5% and 10% due to debt funding of acquisitions
  • A tax rate of approximately 25%

Now What: Investors will now look across the sector to determine what Sonic’s update means for its peer group. The news could be good for Primary Health Care Limited (ASX: PRY) and Healthscope Ltd (ASX: HSO) given they both have substantial domestic pathology operations which Sonic was upbeat on. The news may not be so good for Capitol Health Ltd (ASX: CAJ) which is a provider of domestic diagnostic imaging and a sector Sonic singled out for its subdued growth and uncertainty.

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Motley Fool contributor Tim McArthur has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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