ResMed Inc
About the author:
- Author name:
- By Dr Derek Jellinek
- Job title:
- Senior Analyst
- Date posted:
- 07 November 2016, 12:11 PM
- Sectors Covered:
- Healthcare
Key points
- 1Q results were softer than expected.
- The Brightree acquisition is performing to expectations, contributing c8% to the top line and GM uplift toward the top of the 70-100bp guidance range.
- Importantly, mask category weakness appears at its nadir as a new CPAP mask product life cycle (PLC) is underway with positive patient/physician/provider views.
1Q soft, but underlying growth tracking the market
1Q underlying earnings were below expectations (NPAT US$87.6m, +3.5% vs Morgans US$95m), impacted by higher spend (opex US$163m, +18%) and a softer top line (US$464.4m), with adjusted operating profit of US$111m (+11%). Underlying revenue growth tracked the market (+5%), albeit organic growth was soft (+3%), with no evidence of customer loss on integrating the Brightree informatics platform (+8%).
Sales in the Americas were mixed (US$267.9m, +5%; ex-Brightree), with continued strength in flow generators (US$145.6m, +10%) contrasted against flat uptake in masks (US$122.3m). Sales in the rest of the world (US$164.5m, +10%) were in-line with market growth. The dividend grew 10% to US$0.33.
Weakness temporary; new mask PLC and unlocking connected care
The mask category appears to be the cause of 1Q weakness as customers withheld purchases in front of a new product launch. Overall there was solid double-digit global revenue growth led by sales from Brightree and strong device platforms growth across both sleep and ventilation on the uptake of connected care AirSolutions software. We remain comfortable with the prospect of increasing earnings trajectory, given:
- release of AirFit F20 and AirFit N20 CPAP masks, with positive patient/physician/provider feedback and management confident category growth will accelerate;
- Brightree performing to expectations, with a high-margin SaaS model supporting device/masks growth and GM gains;
- Ventilators returning to growth; and
- tightened GM guidance (58-60% from 57-60%) on 'normal' pricing, improving product/geographic mix, Brightree uplift and manufacturing/procurement benefits.
Investment view
We have made modest revisions to our FY17-19 estimates based on modestly lower sales projections. Although shares have been negatively impacted by a softer 1Q and broader sector weakness, with a new PLC underway and a leadership position in health informatics, we see share price appreciation beyond 10% and maintain our Add recommendation.
More information
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Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.
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