The Sonic Healthcare Limited (ASX: SHL) could be poised to outperform the market today after it posted a more than doubling in net profit this morning.
But the big increase in profit and revenue isn't the most exciting part of the result, although it will still be warmly welcomed by shareholders.
The medical diagnostic services group posted a 166% surge in first half net profit to $678 million. Earnings before interest, tax, depreciation and amortisation (EBITDA) jumped 89% to $1.3 billion as revenue improved by a third to $4.4 billion.
Sonic share price gets COVID profit booster shot
The Sonic share price has been a COVID-19 winner as demand for COVID tests have hit the roof in all the countries it operates in.
Sonic undertook more than 18 million PCR tests to date in around 60 Sonic laboratories located around the world.
Demand for such tests is likely to persist for a while yet. Even as mass vaccinations are rolled out globally, testing is key to controlling the spread.
Other tailwinds behind Sonic's share price
But a bigger reason why I like its results is the operating leverage. Earnings have increased significantly ahead of revenue due to economies of scale.
Another exciting detail relates to its core business of testing and screening for non-COVID ailments. This part of the business took a big hit at the start of the pandemic due to social restrictions and patients fear of catching COVID at medical facilities.
"Our global base business revenue (excluding COVID testing) declined by 1% versus the comparative period, which was a very significant improvement versus the dramatic falls in base business we experienced from mid-March through May 2020," said Sonic's CEO, Dr Colin Goldschmidt.
"It appears our base business is becoming increasingly less affected by social restrictions and fear of infection, through better community understanding of the dangers in delaying or avoiding essential healthcare services."
New growth opportunities
Sonic upped its interim dividend by 6%, or 2 cents, to 36 cents a share and the group's gearing hit a record low. Sonic has $1.3 billion in liquidity before paying out the first half dividend.
That should still leave plenty in the tank to grow the business, and on that front, Sonic is striking an upbeat tone.
"Our management teams around the world are increasingly focussing on further growth opportunities, including acquisitions, contracts and joint ventures, supported by our very strong balance sheet," added Goldschmidt.
"We are currently bidding on significant opportunities in Australia, the UK, the USA and Alberta, Canada."
