The Sonic Healthcare Ltd (ASX: SHL) share price has jumped 13% after reporting a very healthy profit in HY23.
Sonic is a global leader in pathology. It does various tests for doctors and patients, including COVID tests.
HY23 result
Here are some of the highlights from the FY23 half-year result:
- Base business (excluding COVID testing) revenue, up 9% year over year to $3.7 billion
- COVID revenue of $379 million
- Total revenue down 14% to $4.08 billion, but up 22% compared to HY20 (pre-pandemic)
- EBITDA (EBITDA explained) of $920 million, down 40% year over year, but up 33% on HY20
- Net profit after tax (NPAT) of $382 million, down 54%, but up 50% on HY20
- Operating cashflow of $785 million, down 25%, but up 47% on HY20
- Interim dividend up 5% to $0.42 per share
Sonic Healthcare revealed that its base business organic revenue growth is “gaining momentum”, with January 2023 revenue up 10% compared to January 2020.
The underlying drivers of growth for the business are being enhanced by post-pandemic catch-up testing. But, Sonic is also expecting ongoing COVID testing. January 2023 COVID revenue was A$32 million. I think this is helpful for the Sonic Healthcare share price.
Sonic also said that it has a major focus on costs, with base business margins remaining in line with pre-pandemic levels, including the labour cost. It’s focusing on automation and efficiency gains to help. Procurement savings for consumables are also expected to help.
Growth plans
The business is “currently progressing several acquisition and contract opportunities.”
Growth is expected in genetic testing, including prenatal tests, as well as exclusive or limited provider tests. It mentioned its 19.99% stake investment of Microba Pty Ltd (ASX: MAP), a microbiome testing provider. This is a rapidly-growing field of “personalised, precision healthcare”.
Genetic sequencing helps analyse microorganisms within the body that contribute to disease or promote wellness. Demand for testing for clinicians and consumers is expected to grow.
Sonic also has a 20% stake in Harrison.ai, which is developing ‘best-in-class’ AI diagnostic tools. The AI tools are aimed to help with efficiency and quality across its global operations.
The business also sees growth potential with hospitals and other healthcare providers outsourcing, or perhaps a joint venture laboratory service.
Final thoughts on the Sonic Healthcare share price
I’m not surprised to see that the market likes this result.
COVID-19 testing revenue continues to flow into the business, at a relatively high margin.
Profit has risen considerably compared to pre-COVID times and I think it’s a good sign that base revenue growth is accelerating.
With a growing dividend and plans for growth in various ways, I think the Sonic share price is still attractive for the long-term.
