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Sonic Healthcare (ASX:SHL) share price declines 5% on FY23 result, lower COVID testing

The Sonic Healthcare Ltd (ASX:SHL) share price is down 5% after the business announced its FY23 result and gave FY24 guidance.

The Sonic Healthcare Ltd (ASX: SHL) share price is down 5% after the business announced its FY23 result.

Sonic Healthcare is a global pathology provider, with operations in Europe, US and Australia.

FY23 result

Here are some of the highlights from the report for the 12 months to June 2023:

  • Base business revenue rose 11% to $7.68 billion
  • COVID-19 revenue sank 80% to $485 million
  • Total revenue dropped 13% to $8.17 billion
  • EBITDA (EBITDA explained) declined 40% to $1.71 billion
  • Net profit after tax (NPAT) fell 53% to $685 million
  • Full year dividend grew by 4% to $1.04 per share

Looking at the individual areas, there was base business organic growth: in the US of 4%, in Australian pathology of 11%, in Germany of 10%, in the UK of 6%, in Switzerland of 1%, in Belgium of 12% and in (Australian) radiology of 11%. However, Sonic Clinical Services saw revenue fall 10%.

During the year it also made three European acquisitions for an enterprise value of A$890 million. Sonic Healthcare is currently progressing “several” new acquisitions and contract growth opportunities.

Medium-term earnings growth

Sonic thinks profit can grow as it grows its base revenue, which excludes COVID-19 revenue, which can help operating leverage (and hopefully the Sonic Healthcare share price).

Revenue and earnings from recent acquisitions, as well as synergies, should help net profit.

There’s fee indexation for Sonic Healthcare’s services in various markets and services, including radiology, the UK and Belgium, which can help earnings.

It’s also looking to combine laboratories in places like Germany (Hamburg and Munich), which can help reduce costs and boost margins.

Sonic is expecting digital pathology and AI to enhance efficiencies in anatomical pathology.

Outlook for the Sonic Healthcare share price

It gave a guidance range for EBITDA of between $1.7 billion to $1.8 billion – this would be growth of up to 5%, or, at worst, the same as last year. The base business performance is expected to offset the “material reduction” in COVID-19 related earnings.

To me, Sonic Healthcare is one of the most effective healthcare shares at delivering dividend growth and long-term earnings growth. The combination of organic revenue growth and acquisitions is working well.

I think the long-term looks very promising for the company.

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