Consensus community valuation
Update 15/08/2023
FY23 underlying NPAT came in at the top range of guidance finishing at $305.2m, representing a 10% increase compared to last year. Updated chart below:
FY24 outlook has been given with guidance of $355-375m underlying NPAT which would represent an increase of 16-23%.
Basing my valuation using the midpoint of this guidance ($365m) and forecasting out 5 years at 10% for years 2-5. Assuming a terminal PE of 40 gives a valuation of $202.02.
Disc: Not held.
Update 02/03/2023
Updating based on 1H FY23 results. Underlying NPAT was around $141m which was a decrease compared to PCP
Guidance for the full year for underlying NPAT was maintained at $290-$305m. Assuming full year NPAT is around $300m, then growth for the year would be around 8.35%. Below is the updated chart.
I'm gonna give them the benefit of the doubt that they can maintain 10% growth pa for the next 4 years to FY27. A PE of 40x and then discounting would give a valuation of $182.65. Still think this is too expensive for a company with slowing growth albeit in a very defensive sector.
Disc: Not held.
Update 19/08/2022
Updating based on FY22 results. Underlying NPAT came in at $277 which is in the midrange of guidance. Below is the updated chart
If I assume 12.5% growth for 5 years, a terminal PE of 40x and discount back 10% pa, then valuation comes in at around $188.70
Disc: Not Held
Original Valuation
Cochlear is one of Australia's real success stories and is the global leader in hearing implants.
Underlying net profit has been hit hard by Covid and in FY20 they also had to deal with issues in regards to a patent litigation. I have graphed out their reported underlying net profit for the last 4 years and also included an FY22 estimate of $265m which is at the low end of their guidance.
If we assume that Cochlear will be a beneficiary of a Covid reopening, and we assume a 10% increase to NPAT for the next 5 years, After discounting back 10% per annum, I have a price target of $161.34. This is assuming they are still trading at a PE of 40x in FY26.
Currently I feel the share price is a bit rich. The reported historic PE is 38.5x but this is based on the reported NPAT in FY21 of $326.5 which included $89.8m of one-off profit items related to their patent litigation. So based on their underlying NPAT they are currently trading at around 53x.
The average PE prior to FY20 was around 40x. So based on a forward PE of 40x their lower end of guidance of $265m, that gives us a share price of around $161.09. Similar to my price target as calculated above.
COH are due to report their 1H22 earnings on February 22. So I may edit my valuation based on what they report.
Disc: Not held
Cochlear announced their 1H FY22 results today. From their release:
- Sales revenue increased 10% (12% in CC) to $815m.
- Cochlear implant units increased 7% to 18,598.
- Statutory net profit of $169m includes $12m in innovation fund gains after‐tax.
- Underlying net profit increased 26% to $158m, driven by the combination of strong sales growth and improved gross margin, with some benefit from lower‐than‐expected operating expenses.
- The interim dividend increased 35% to $1.55 per share, representing a payout of 65% of underlying net profit. We expect the dividend payout to be around 70% for the full year, in line with our target payout.
- FY22 underlying net profit guidance range maintained at $265‐285m, a 13‐22% increase on underlying net profit for FY21. Guidance now incorporates cloud computing expenses and anticipates continuing COVID impacts for the balance of the year. A more material disruption from COVID than experienced in the first half remains a risk factor that does not form part of guidance.
Overall I think this is a pretty good result given the continued covid headwinds it is facing. Guidance was reaffirmed so perhaps they are expecting a weaker 2H?
See my valuation for more details.
I still think it is quite expensive, especially after the jump after results were released. At the current price it is around 50x the mid range ($275m) of their guided underlying NPAT.
Disc: Not held