Sonic Healthcare Limited (ASX: SHL) is selling one of its businesses for a profit of €30 million, is it a buy?
Sonic Healthcare is one of Australia’s largest healthcare businesses, it provides laboratory services, pathology, and radiology services. It is actually the world’s third largest pathology/laboratory medicine company. It has operations in Australia, USA, Germany, Belgium, Switzerland, the United Kingdom, Ireland and New Zealand.
Sonic’s Sale
Sonic has sold its 85% stake of German business GLP Systems to US healthcare giant Abbott Laboratories (NYSE: ABT).
Sonic thinks the company’s potential will be more fully realised in partnership with a suitable partner in the IVD equipment market, and Abbott is the global leader in this market. Sonic also said that GLP is not core to Sonic’s business.
GLP Systems was an important business for Sonic because, with the help of Sonic staff and laboratories, it developed a “cutting edge” laboratory automation system which has been installed in eight Sonic laboratories in Australia, the UK and Germany with more planned. GLP Systems is expected to make around €14 million of revenue in FY19.
The sale agreement includes a long term collaboration section between Sonic and Abbott, as Sonic will continue to be an important customer of GLP.
Sonic will make an after-tax profit on the GLP Systems sale of €30 million. However, €80 million of cash will be returned to Sonic which consists of sale proceeds and shareholder loan repayments. That money will be used to repay existing Euro debt and create additional balance sheet capacity for further laboratory acquisitions.
Is Sonic A Buy?
Sonic has been an excellent defensive business to own over the past two decades, with a reliable dividend and pleasing tailwinds thanks to an ageing population and better technology.
However, I fear that unless Sonic can make more major acquisitions into the future, its strong performance will be difficult to keep going. I like the idea of investing in businesses that have defensive earnings and have the potential for market beating growth, such as the ones in the free report below.
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