Sonic Healthcare share price surges 9% on 'amazing' profit result

Sonic shares are having a day to remember on Thursday despite reporting a huge profit decline…

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Key points

  • Sonic shares are surging on Thursday following the release of the company's half year results
  • The healthcare company reported a big decline in profits due to a significant reduction in COVID revenues
  • Sonic's profits were up strongly on pre-pandemic times

The Sonic Healthcare Limited (ASX: SHL) share price is charging higher on Thursday.

In morning trade, the healthcare company's shares are up 9% to $31.74.

This follows the release of Sonic Healthcare's half year results.

Sonic Healthcare share price jumps despite profit decline

  • Total revenue down 14% to $4,082 million
  • Earnings before interest, tax, depreciation and amortisation (EBITDA) down 40% to $920 million
  • Net profit down 54% to $382 million
  • Fully franked interim dividend increased 5% to 42 cents per share

What happened during the half?

For the six months ended 31 December, Sonic Healthcare reported a 40% decline in total revenue to $4,082 million. This reflects a 72% decline in COVID-19 revenue to $379 million, which offset a 9% lift in base business revenue to $3,703 million.

When compared to its performance in the first half of (pre-pandemic) FY 2020, revenue would have been up 22%.

It was a similar story for Sonic Healthcare's earnings, which fell heavily year over year but rose strongly compared to pre-pandemic times. The company's net profit of $382 million was down 54% over the prior corresponding period but up 50% from the first half of FY 2020.

Despite the year over year profit decline, Sonic Healthcare has maintained its progressive dividend policy and increased its interim dividend by 5% to a fully franked 42 cents per share.

How does this compare to expectations?

Given the Sonic Healthcare share price performance today, you might expect that this result was ahead of expectations.

However, the company's sales and net profit were actually 1% below consensus estimates.

Management commentary

Sonic's CEO, Dr Colin Goldschmidt, described the company's profit as 'amazing'. He commented:

At face value, Sonic Healthcare's result for the half-year shows declining revenue and earnings as a result of a dramatic reduction in revenue from COVID-19 related services against the same period in the prior year. Taking a longer-term view, our net profit for the half-year is an amazing 50% higher than in the most recent pre-pandemic comparable period, being H1 FY 2020.

The reduction in COVID related revenues also tends to mask the performance of our base business, which remains strong and is gaining further momentum. Base business revenue grew 6% organically versus H1 FY 2022 and 8% versus H1 FY 2020. For the month of January 2023 base business organic growth for the group was 10% versus January 2020. I am particularly pleased with the growth momentum of our Australian Pathology business, where growth in January was 16% versus January 2020. Comparing our own Australian base business Medicare billings to the national Medicare data over the last decade shows that Sonic has been consistently growing market share organically.

Outlook

No guidance has been provided for FY 2023. However, the company did advise that revenue was up 10% in January compared to the same period in 2020.

Furthermore, management appears positive on the outlook for the base business. Dr Goldschmidt added:

We are well-positioned to capitalise on the accelerating trend towards higher value tests and modalities in both laboratory medicine and radiology. We expect ongoing strong growth in genetic testing, including prenatal tests, and through exclusive or limited provider tests such as ThyroSeq, Oncotype DX, microbiome testing and others. Our base business organic growth is assisted by strong underlying industry drivers and is expected to be enhanced by post-pandemic catchup testing.

With the worst of the pandemic seemingly now behind us, we look forward to continuing to provide world-leading medical diagnostic services to our patients and their physicians.

And with the company ending the period with available liquidity of $1.5 billion, management revealed that it is progressing several acquisition opportunities. This could be what has got investors excited and boosted the Sonic Healthcare share price today.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Sonic Healthcare. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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