Sonic Healthcare is a clear buy regarding technical analysis and has good fundamentals. The share price is again reaching all-time highs following the COVID crash. We’re bullish on the future of SHL and here’s why. So, should I buy Sonic Healthcare shares?
Sonic Healthcare Shares Price
Over the past year, Sonic healthcare is up 30.92% and has more than recovered from the COVID-19 recession pushing to new all-time highs. The current sonic healthcare shares price is $37.81, at the upper end of its 52-week range of 28.53-38.39.
During the COVID crash, SHL shares fell from 32 to 21.13, representing a massive fall of 33.65%.
Over the course of the past ten years, SHL is up 637%, averaging 50.63% per year. This is attributed to 42.26% in capital gains and 8.38% from its historically lucrative dividend yield.
Sonic Healthcare Shares Review: About
SHL’s Principal Activity is the provision of medical diagnostic services and the provision of administrative services and facilities to medical practitioners. Source: Market Index
Sonic Healthcare is the market leader in laboratory medicine/pathology in Australia, Germany, Switzerland, the UK, and Northern Belgium (Flanders), and the third-largest private laboratory company in the US.
Sonic Imaging is the second largest diagnostic imaging provider in Australia. Sonic Imaging is made up of eight practice groups, with more than 100 radiology centers geographically spread across Australia.
Sonic Clinical Services (SCS) brings together a broad spectrum of health services including general practice clinics and after-hours GP services, occupational health services, remote health services, community and home nursing services, primary care research programs, health assessment technologies, clinical trials, and chronic disease management programs.
Should I Buy Sonic Healthcare Shares: Dividend History
SHL typically announces a dividend with the release of its half-yearly results in February and full-year results in August as seen in their financial calendar. Dividends are typically paid twice a year, in March (interim dividend) and September (final dividend).
SHL has paid biannual dividends every year since 1996. This includes the 2008 GFC and COVID recession. SHL pays a 20-30% franked dividend. The current average yearly dividend for SHL shares is $0.9819 giving them a decent yield of 2.3% or a gross yield of 2.6% at the current share price.
Should I Buy Sonic Healthcare Shares: Investor Sentiment
After surveying 210 Investors about their current SHL shares sentiment: BUY-HOLD-SELL, as well as their target price over the next 12-months here are the results;
The results from this survey show there is currently a relatively bullish investor sentiment on SHL shares. So how much are SHL shares worth? Let’s get into it.
Should I Buy Sonic Healthcare Shares: Fundamentals
|Volume 4W Avg||653,847|
|NTA per Share||-1.43|
The fundamentals indicate that SHL is reasonably priced. The PE of 18.94x is within the market average of 15-20x. SHL also has a relatively good ROE of 16.4%. The business debt to equity ratio is relatively high at around 42%.
Should I Buy Sonic Healthcare Shares: Financials
Sonic Healthcare released its last full-year results in August 2020, here are the highlights:
- FY2019 result in line with guidance – underlying EBITDA growth 6.7% (constant currency)
- Revenue growth 11.6% to A$6.2 billion
- EBITDA growth 13.3% to A$1.1 billion
- Net profit growth 15.6% to A$550 million
- Final dividend up 4.1% to $0.51 per share (full-year dividend up 3.7% to A$0.84)
- Strategic acquisition of Aurora Diagnostics completed in January 2019
- Strategic divestment of non-core GLP Systems completed in June 2019
- Growth momentum strong – major opportunities ahead
Despite the challenging economic environment over the past year, SHL has delivered record-breaking results. Sonic Healthcare managed to grow its revenue 12% from $5.5 billion to $6.8 billion. Net profits have grown 16% to $550 million.
Sonic Healthcare has $736 million in cash and cash equivalent which has grown substantially from 2018. Their total assets are $9.9 Billion. After accounting for total liabilities, their net assets are $5.5 billion. SHL has a relatively high debt with a debt-to-equity ratio of 42%. Their debt is well covered and controlled by their cashflows and the company has taken action to reduce debt from 75.5% to 42% over the past 5 years
We see from the cash flow statement that the increase in cash and cash equivalents is from the proceeds from issues of shares and equities, and also the proceeds from borrowings.
Should I Buy Sonic Healthcare Shares: Technicals
In summary, the upside is likely to prevail as long as $36.8 is support. The alternative scenario is that a downside breakout of $36.8 would call for $35.7 and $35.1.
Here’s a breakdown of the detailed Technical Factors;
SHL Shares ASX: Insider Ownership and Trading
Sonic healthcare has no significant insider ownership, accounting for only 0.7%. The general public and institutions are the major shareholders owning 61.6% and 32.9% respectively. Private companies own 4.4% and the remaining 0.4% is owned by 0.4%.
Veritas and Blackrock are the substantial shareholders in Sonic Healthcare.
|Name||Last Notice||Total Shares||Shares Held (%)|
|Veritas Asset Management||14/04/2021||24,388,890||5.10%|
In 2021 there has been substantial trading activity in SHL. There has been slightly more selling, although nothing alarming to us.
|14 Apr 21||Sell||AU$299,352,458||Veritas Asset Management LLP||Company||8,833,928||AU$33.89|
|30 Mar 21||Buy||AU$84,146,980||Veritas Asset Management LLP||Company||2,819,216||AU$29.85|
|02 Mar 21||Sell||AU$100,411||BlackRock, Inc.||Company||11,541,388||AU$36.77|
|02 Mar 21||Buy||AU$199,732||BlackRock, Inc.||Company||7,294,772||AU$36.75|
|01 Mar 21||Buy||AU$31,680||Kathryn Spargo||Individual||1,000||AU$31.68|
|19 Feb 21||Buy||AU$20,084||Suzanne Crowe||Individual||584||AU$34.39|
Sonic Healthcare Subsidies Analysis
Laboratory Medicine Pathology
The USA business is the biggest revenue driver for the company. They also have a massive 39% organic growth. Although base business revenue down 8% in H1 due to the second wave of COVID.
- High volume COVID PCR and serology tests in 13 laboratories across the country
- Awarded National Institutes of Health contract to create surge capacity for COVID-19 testing
- Ongoing labor savings from structural changes at beginning of the pandemic
- Thyroseq national sales strategy underway, dedicated laboratory in NY nearing completion, current annual revenue ~US$20 million
Germany has had impressive revenue organic growth of 58%. Their base business was largely unaffected by COVID-19.
- Sonic the largest provider of COVID-19 PCR tests in Germany, in 30 laboratories nationwide
- Established national SARS-CoV-2 mutation screening program (weekly re-testing of PCR-positive specimens)
- Ramp-up of SARS-CoV-2 whole-genome sequencing since January 2021, feeding into national and scientific databases
- Active support and leadership of industry association and direct pandemic-related Government advisory role
- National HPV cervical cancer screening program contributing to future growth, enhanced by a pandemic-related backlog in testing
The Australian pathology business had 26% organic revenue growth. They were also the leading provider of COVID-19 test their primary pathology business Sullivan Nicolaides.
- Sonic is a leading provider of COVID PCR testing in Australia
- Maintaining PCR surge capacity in every state to assist with outbreak management
- Sonic providing COVID surveillance testing for Australia’s aged care facilities under Federal Government contract
- National Bowel Cancer Screening contract extended for 2 years from January 2021 Australia
- Expansion of genetics testing facility in Sydney completed supporting ongoing strong growth
Diagnostic Imaging Radiology
Sonic Imaging operates under a number of brands and subsidies; including SKG radiology, Queensland x-ray, and Hunter Imaging. Sonic imaging was responsible for 7% of Sonic’s revenues. The group showed 14% revenue growth and 19% EBITDA growth.
In June the group announced a further strategic acquisition of Canberra imaging group to add to their portfolio. Sonic Healthcare has signed a binding agreement to acquire 100% of Canberra Imaging Group. The acquisition of CIG is a significant and positive step in the development of Sonic’s Imaging division in Australia, broadening its footprint, deepening its talent pool, increasing the revenue of the division by ~10%, and offering a potential opportunity for synergy benefits.
The group has annual revenues of ~A$60 million, and is the leading radiology practice in Canberra, with branches also located in Goulburn and Queanbeyan in New South Wales. The group operates 10 service sites across 9 locations. CIG
operates one fully-funded (via Medicare), two partially-funded and two unlicensed MRI scanners, and also operates one of two private PET CT scanners in Canberra. It is the only private operator of an angiography and interventional day suite in the area.
General practice medicine and corporate medical services
Sonic Clinical Services (SCS) brings together a broad spectrum of health services. Sonic Clinical Services has developed several digital products that make healthcare easier for patients and healthcare professionals, including Inca a digital platform for GPs to store and share patient information and create care plans. As well as an appointment management application called Easy Visit.
The group’s revenues were impacted worst by the pandemic with a drop of 4%. Despite this, they still managed to maintain profits in line with the previous year.
- GP service provision maintained throughout the pandemic
- Ongoing utilization of flexible care delivery models, including telehealth
- Selected by Federal Government to provide capacity for COVID-19 vaccination
- Expect to play a significant role in the Australian vaccination program
Sonic Healthcare and the COVID recession
At the beginning of the pandemic the company was materially impacted and responded with executives taking a 50 percent pay cut, a hiring freeze, and thousands of staff stood down. This large impact was mostly from the halt of routine testings during the beginning of the pandemic.
Although portions of Sonic dropped during the COVID pandemic, the company as a whole is positioned well to grow coming out of the pandemic. Not only is it back to business as usual but they are one of the key players in testing for COVID-19 across several counties.
For instance, their United States business, which makes up 27 percent of sales, is set to gain a piece of the spend of $US1.6 billion to expand COVID-19 testing. CEO Dr Goldschmidt said it could double or triple its testing if needed.
Sonic is the world’s third-largest provider of clinical laboratory services and is the largest private pathology operator in Australia.
Sonic’s position is secure and trends are looking positive at the company and business levelCEO, Dr Goldschmidt
Should I Buy Sonic Healthcare Shares: Future Prospects
Sonic Healthcare released the following outlook:
- Expect demand for COVID-19 testing to continue into the foreseeable future, volumes unpredictable
- Increasing acquisition, contract, and joint venture growth opportunities
- Supported by a very strong balance sheet, leaving sonic in a position for the strong future growth
- Currently bidding on significant opportunities in Australia, UK, USA, and Alberta, Canada
- Geographical diversification, providing increased opportunities for expansion
- Underlying strong healthcare growth drivers unchanged
- Leading market positions in Australia, Germany, USA, UK, Switzerland
Sonic provides essential healthcare services, base business increasingly resilient to impacts of a pandemic. We see the companies operation to benefit and show continued growth following on from the pandemic. The companies history of strategic acquisitions has and will continue to make them a core healthcare provider across multiple countries.
These acquisitions have and will continue to be a core business strategy for Sonic.
Sonic Healthcare Shares Review: Prophet’s Take
Sonic Healthcare’s portfolio of companies has recovered quickly from the COVID-19 crash. The business is poised to grow and respond rapidly on the back of the pandemic. They have sound fundamentals and are taking steps to pay down their high debt levels.
SHL continues to grow its portfolio through further strategic acquisitions which will have material impacts on the companies revenues. We will see Sonic maintain and grow its market-leading positions across Australia, the US, Germany, UK, and Switzerland. We are currently BULLISH on Sonic Healthcare.
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