Fisher & Paykel Healthcare

Transcription

1 NEW ZEALAND FPH NZ Price (at 05:00, 10 Jul 2015 GMT) Outperform NZ$7.03 Valuation NZ$ DCF (WACC 8.8%, beta 0.9, ERP 7.0%, RFR 4.5%, TGR 2.0%) 12-month target NZ$ month TSR % Volatility Index Low GICS sector Health Care Equipment & Services Market cap NZ$m 3, day avg turnover NZ$m 7.5 Number shares on issue m Investment fundamentals Year end 31 Mar 2015A 2016E 2017E 2018E Revenue m EBIT m Reported profit m Adjusted profit m Gross cashflow m CFPS CFPS growth % PGCFPS x PGCFPS rel x EPS adj EPS adj growth % PER adj x PER rel x Total DPS Total div yield % Franking 1 % ROA % ROE % EV/EBITDA x Net debt/equity % P/BV x NZ imputation credits are only able to be used by shareholders to offset NZ income tax liability. FPH NZ vs NZSE50, & rec history Note: Recommendation timeline - if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period. Source: FactSet, Macquarie Research, July 2015 (all figures in NZD unless noted) 13 July 2015 Macquarie Securities (NZ) Limited Weak Kiwi: Strong FPH Event We have updated our forecasts and valuation for the decline in the NZ Dollar and Macquarie s new set of NZ dollar forecasts. Impact The plunge in the Kiwi has brought the valuations based on constant currency and Macquarie s currency forecasts in line. This has provided sufficient confidence for the re-adoption of the 12-month roll forward of our DCF as our price target. We have also adopted Macquarie s new currency forecasts for the NZ dollar. Macquarie has reduced its NZ dollar forecasts in the short/medium term, but longer term forecast are left largely unchanged. More specifically, Macquarie is now picking a decline in the NZDUSD to 0 in early CY16, but by mid CY17 the USD forecast is back to The most recent changes to the NZ dollar forecast track have minimal impact on our valuation (terminal year forecast have not changed). More specifically, our DCF valuation has increased 10 cps, but the vast majority of this (8cps) is the time difference between the valuations (they are 6 weeks apart). It is worth noting if that if the Kiwi continues to decline in line with Macquarie s new forecast track (i.e. the NZ dollar drops to 0) then our constant currency valuation will hit $8.80 (cet. par.) which implies a 12 month target price of almost $9.50. Fisher and Paykel has hedged almost all of its FY16 net exposure and so the changes made by the economics team have a negligible impact on our FY16 forecasts. The largest impact is in the FY17 and FY18 years. Earnings and target price revision Macquarie s new lower NZ dollar forecast track has driven upgrades in the medium term (FY16 net exposure almost fully hedged). Longer term forecasts are slightly lower due to a higher NZDEUR. EPS revisions FY16 = 0.3%, FY17 = 6.4% and FY18 = 5.7%. Price target increased to $7.80 from $7.25. Price catalyst 12-month price target: NZ$7.80 based on a DCF methodology. Catalyst: Outlook update at the AGM (August 27) Action and recommendation We rate FPH an Outperform with a $7.80 price target. The company has the strongest new product portfolio ready for release in its history, which is due to be released over the next year. They are also in the process of taking the distribution of RAC products in the US in-house, which allows increased control over and the prospect of margin improvement. It is worth noting that the key risk to our positive view on the company is that the NZ dollar reverses: our valuation and future earnings estimates are very sensitive to the Kiwi. Please refer to page 4 for important disclosures and analyst certification, or on our website

2 Fig 1 Financial summary PROFIT & LOSS 1H15a 2H15a 1H16e 2H16e PROFIT & LOSS FY15a FY16e FY17e FY18e Constant currency revenue Constant currency revenue Respiratory and acute care 163, , , ,788 Respiratory and acute care 352, , , ,954 Obstrustive sleep apena 130, , , ,639 Obstrustive sleep apena 278, , , ,036 Other and Distribution 5,359 7,165 5,230 5,230 Other and Distribution 12,524 10,461 10,461 9,689 Total 299, , , ,658 Total 644, , , ,679 NZ Dollar Profit & Loss NZ Dollar Profit & Loss Operating revenue 299, , , ,677 Operating revenue 644, , , ,860 Hedging 18,228 10,107 1,089-27,250 Hedging 28,335-26,161-29,442 48,907 Total revenue 317, , , ,427 Total revenue 672, , , ,767 COGS 125, , , ,970 COGS 261, , , ,170 Gross profit 192, , , ,457 Gross profit 410, , , ,597 Other Income 2,500 2,500 2,500 2,500 Other Income 5,000 5,000 5,000 5,000 SG&A 75,081 74,180 90, ,824 SG&A 149, , , ,690 R&D 31,338 33,649 34,540 39,941 R&D 64,987 74,480 79,389 83,024 EBITDA 88, ,437 94, ,192 EBITDA 201, , , ,883 Depreciation 13,917 14,026 14,330 14,870 Depreciation 27,943 29,200 31,487 34,103 Amortisation 1,754 1,951 2,019 2,538 Amortisation 3,705 4,556 5,015 5,000 EBIT 72,623 97,460 78, ,784 EBIT 170, , , ,780 Net interest expense 5,714 5, ,750 Net interest expense 11,317 3,077 6,083 2,016 Net profit before tax 66,909 91,857 77, ,034 Net profit before tax 158, , , ,763 Taxation 18,092 27,501 21,763 28,569 Taxation 45,593 50,332 73,689 90,934 Net profit after tax 48,817 64,356 55,962 73,464 Net profit after tax 113, , , ,830 EXCHANGE RATE ASSUMPTIONS 1H15a 2H15a 1H16e 2H16e EXCHANGE RATE ASSUMPTIONS FY15a FY16e FY17e FY18e NZ Dollar \ US Dollar NZ Dollar \ US Dollar NZ Dollar \ Euro NZ Dollar \ Euro NZ Dollar \ British Pound NZ Dollar \ British Pound NZ Dollar \ Australian Dollar NZ Dollar \ Australian Dollar NZ Dollar \ Canadian Dollar NZ Dollar \ Canadian Dollar NZ Dollar \ Japanese Yen NZ Dollar \ Japanese Yen NZ Dollar \ Mexican Peso NZ Dollar \ Mexican Peso MULTIPLES AND PER-SHARE METRICS 1H15a 2H15a 1H16e 2H16e MULTIPLES AND PER-SHARE METRICS FY15a FY16e FY17e FY18e EPS (reported) EPS (reported) PER (reported) 39.9x 30.4x 35.1x 26.7x PER (reported) 34.5x 30.3x 20.7x 16.9x Payout ratio 66% 69% 70% 61% Payout ratio 68% 65% 61% 70% DPS (cps) DPS (cps) Imputation 100% 100% 100% 100% Imputation 100% 100% 100% 100% Dividend yield (gross) 2.3% 3.2% 2.8% 3.2% Dividend yield (gross) 2.7% 3.0% 4.1% 5.8% NTA per share NTA per share P/NTA 9.9x 8.9x 8.7x 8.2x P/NTA 8.9x 8.2x 7.0x 6.2x EV/EBIT 27.6x 20.5x 25.6x 19.1x EV/EBIT 23.5x 21.9x 14.9x 12.2x EV/EBITDA 22.7x 17.6x 21.2x 16.4x EV/EBITDA 19.8x 18.5x 13.1x 10.9x Weighted average shares Weighted average shares KEY RATIOS 1H15a 2H15a 1H16e 2H16e KEY RATIOS FY15a FY16e FY17e FY18e Revenue growth (constant currrency) 12.7% 13.6% 10.1% 11.3% Revenue growth (constant currrency) 13.2% 10.7% 12.8% 10.8% Revenue growth (NZD) 4.5% 11.1% 11.0% 18.5% Revenue growth (NZD) 7.8% 15.0% 18.8% 7.7% NPAT growth 9.7% 22.4% 14.6% 14.2% NPAT growth 16.6% 14.4% 46.4% 23.4% EPS growth 10.1% 20.1% 13.7% 13.9% EPS growth 15.6% 13.8% 46.2% 23.1% DPS growth 7.4% 14.3% 20.7% 0.0% DPS growth 11.3% 8.7% 37.0% 42.1% ROA 23.2% 29.1% 22.2% 27.5% ROA 25.4% 24.0% 32.5% 35.5% ROE 23.6% 27.3% 22.8% 28.2% ROE 24.0% 24.8% 31.5% 34.4% Debt/(debt + equity) 14.6% 7.7% 10.9% 11.7% Debt/(debt + equity) 7.7% 11.7% 7.4% 7.4% Interest coverage 23.6x 16.0x 44.2x 42.3x Interest coverage BALANCE SHEET 1H15a 2H15a 1H16e 2H16e BALANCE SHEET FY15a FY16e FY17e FY18e Cash and cash equivalents 6,882 13,621 13,621 13,621 Cash and cash equivalents 13,621 13,621 13,621 13,621 Trade and other receivables 100, , , ,128 Trade and other receivables 109, , , ,537 Inventories 100,415 96, , ,537 Inventories 96, , , ,639 Property, plant and equipment 356, , , ,853 Property, plant and equipment 367, , , ,169 Other assets 61,549 83,337 89,103 92,341 Other assets 83,337 92,341 91,872 89,719 Total Assets 625, , , ,480 Total Assets 669, , , ,685 Trade and other payables 80,217 95,273 84, ,902 Trade and other payables 95, , , ,230 Interest-bearing liabilities 98,432 65,496 90, ,646 Interest-bearing liabilities 65, ,646 75,044 81,736 Other liabilities 32,934 37,857 37,857 37,857 Other liabilities 37,857 37,857 37,857 37,857 Total Liabilities 211, , , ,406 Total Liabilities 198, , , ,823 Shareholders' equity 414, , , ,074 Shareholders' equity 471, , , ,862 DCF VALUATION Total $/share % CASH FLOW FY15a FY16e FY17e FY18e Riskfree rate 4.50% Receipts from customers 659, , , ,572 Equity market risk premium 7.00% Payments to suppliers and employees -462, , , ,361 Asset beta 0.75 Other cashflows from operations -50,131-80, ,490-45,032 WACC 8.76% Net operating cash flows 146, , , ,178 terminal growth rate 2.00% Purchases of PP&E -39,271-57,625-64, ,624 Other cashflows from investments -14,304-13,560-4,545-2,847 Forecast cashflows 1,302, % Net investment cash flows -53,575-71,185-68, ,471 Terminal value 2,899, % Issue of share capital 2,109 4,186 5,744 8,178 Enterprise value 4,202, % Net increase in debt (pre fx impact) -45,207 37,150-27,602 6,692 Net debt 76, % Dividends paid -45,220-83, , ,567 Equity value 4,125, % Net financing cash flows -90,999-42, , ,696 Source: Company data, Macquarie Research, July July

3 Macquarie Quant View The quant model currently holds a strong positive view on Fisher & Paykel Healthcare. The strongest style exposure is Profitability, indicating this stock is efficiently converting its investments to earnings as proxied by ratios such as ROE, ROA etc. The weakest style exposure is Valuations, indicating this stock is over-priced in the market relative to its peers. 37/392 Global rank in Health Care Equip. & Services % of BUY recommendations 38% (3/8) Number of Price Target downgrades 0 Number of Price Target upgrades 1 Fundamentals Attractive Quant Local market rank Global sector rank Displays where the company s ranked based on the fundamental consensus Price Target and Macquarie s Quantitative Alpha model. Two rankings: Local market (Australia & NZ) and Global sector (Health Care Equip. & Services) Macquarie Alpha Model ranking A list of comparable companies and their Macquarie Alpha model score (higher is better). Factors driving the Alpha Model For the comparable firms this chart shows the key underlying styles and their contribution to the current overall Alpha score % -80% -60% -40% -20% 0% 20% 40% 60% 80% 100% Valuations Growth Profitability Earnings Momentum Price Momentum Quality Macquarie Earnings Sentiment Indicator The Macquarie Sentiment Indicator is an enhanced earnings revisions signal that favours analysts who have more timely and higher conviction revisions. Current score shown below. Drivers of Stock Return Breakdown of 1 year total return (local currency) into returns from dividends, changes in forward earnings estimates and the resulting change in earnings multiple % -50% -40% -30% -20% -10% 0% 10% 20% 30% 40% 50% 60% Dividend Return Multiple Return Earnings Outlook 1Yr Total Return What drove this Company in the last 5 years Which factor score has had the greatest correlation with the company s returns over the last 5 years. Interest Cover Number of Shares Increase CPS Growth FY1 CPS Revisions 3 Month Asset Turnover Operating Leverage Inc. SAL Growth 5yr Historic Altman Z-Score -33% -33% -36% -36% Negatives Positives 22% 21% 32% 28% -40% -20% 0% 20% 40% How it looks on the Alpha model A more granular view of the underlying style scores that drive the alpha (higher is better) and the percentile rank relative to the sector and market. Alpha Model Score Valuation Growth Profitability Earnings Momentum Price Momentum Quality Capital & Funding Liquidity Risk Technicals & Trading Normalized Score Percentile relative to sector(/392) Percentile relative to market(/412) Source (all charts): FactSet, Thomson Reuters, and Macquarie Research. For more details on the Macquarie Alpha model or for more customised analysis and screens, please contact the Macquarie Global Quantitative/Custom Products Group (cpg@macquarie.com) 13 July

4 Important disclosures: Recommendation definitions Macquarie - Australia/New Zealand Outperform return >3% in excess of benchmark return Neutral return within 3% of benchmark return Underperform return >3% below benchmark return Benchmark return is determined by long term nominal GDP growth plus 12 month forward market dividend yield Macquarie Asia/Europe Outperform expected return >+10% Neutral expected return from -10% to +10% Underperform expected return <-10% Macquarie First South - South Africa Outperform expected return >+10% Neutral expected return from -10% to +10% Underperform expected return <-10% Macquarie - Canada Outperform return >5% in excess of benchmark return Neutral return within 5% of benchmark return Underperform return >5% below benchmark return Macquarie - USA Outperform (Buy) return >5% in excess of Russell 3000 index return Neutral (Hold) return within 5% of Russell 3000 index return Underperform (Sell) return >5% below Russell 3000 index return Volatility index definition* This is calculated from the volatility of historical price movements. Very high highest risk Stock should be expected to move up or down % in a year investors should be aware this stock is highly speculative. High stock should be expected to move up or down at least 40 60% in a year investors should be aware this stock could be speculative. Medium stock should be expected to move up or down at least 30 40% in a year. Low medium stock should be expected to move up or down at least 25 30% in a year. Low stock should be expected to move up or down at least 15 25% in a year. * Applicable to Asia/Australian/NZ/Canada stocks only Recommendations 12 months Note: Quant recommendations may differ from Fundamental Analyst recommendations Financial definitions All "Adjusted" data items have had the following adjustments made: Added back: goodwill amortisation, provision for catastrophe reserves, IFRS derivatives & hedging, IFRS impairments & IFRS interest expense Excluded: non recurring items, asset revals, property revals, appraisal value uplift, preference dividends & minority interests EPS = adjusted net profit / efpowa* ROA = adjusted ebit / average total assets ROA Banks/Insurance = adjusted net profit /average total assets ROE = adjusted net profit / average shareholders funds Gross cashflow = adjusted net profit + depreciation *equivalent fully paid ordinary weighted average number of shares All Reported numbers for Australian/NZ listed stocks are modelled under IFRS (International Financial Reporting Standards). Recommendation proportions For quarter ending 30 June 2015 AU/NZ Asia RSA USA CA EUR Outperform 46.23% 58.36% 47.27% 44.20% 65% 43.01% (for US coverage by MCUSA, 9.68% of stocks followed are investment banking clients) Neutral 37.67% 25.65% 29.09% 49.29% 34.19% 40.93% (for US coverage by MCUSA, 5.53% of stocks followed are investment banking clients) Underperform 16.10% 15.99% 23.64% 6.52% 5.16% 16.06% (for US coverage by MCUSA, 1.38% of stocks followed are investment banking clients) FPH NZ vs NZSE50, & rec history (all figures in NZD currency unless noted) Note: Recommendation timeline if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period. Source: FactSet, Macquarie Research, July month target price methodology FPH NZ: NZ$7.80 based on a DCF methodology Company-specific disclosures: Important disclosure information regarding the subject companies covered in this report is available at Date Stock Code (BBG code) Recommendation Target Price 17-Mar-2015 FPH NZ Outperform NZ$ Nov-2014 FPH NZ Outperform NZ$ Sep-2014 FPH NZ Outperform NZ$ Feb-2014 FPH NZ Outperform NZ$ Oct-2013 FPH NZ Outperform NZ$ Aug-2013 FPH NZ Outperform NZ$ May-2013 FPH NZ Outperform NZ$ May-2013 FPH NZ Outperform NZ$3.40 Target price risk disclosures: FPH NZ: Any inability to compete successfully in their markets may harm the business. This could be a result of many factors which may include geographic mix and introduction of improved products or service offerings by competitors. The results of operations may be materially affected by global economic conditions generally, including conditions in financial markets. The company is exposed to market risks, such as changes in interest rates, foreign exchange rates and input prices. From time to time, the company will enter into transactions, including transactions in derivative instruments, to manage certain of these exposures. Analyst certification: The views expressed in this research reflect the personal views of the analyst(s) about the subject securities or issuers and no part of the compensation of the analyst(s) was, is, or will be directly or indirectly related to the inclusion of specific recommendations or views in this research. The analyst principally responsible for the preparation of this research receives compensation based on overall revenues of Macquarie Group Ltd (ABN , AFSL No ) ( MGL ) and its related entities (the Macquarie Group ) and has taken reasonable care to achieve and maintain independence and objectivity in making any recommendations. General disclosure: This research has been issued by Macquarie Securities (Australia) Limited (ABN , AFSL No ) a Participant of the Australian Securities Exchange (ASX) and Chi-X Australia Pty Limited. This research is distributed in Australia by Macquarie Equities Limited (ABN , AFSL No ) ("MEL"), a Participant of the ASX, and in New Zealand by Macquarie Equities New Zealand Limited ( MENZ ) 13 July

5 an NZX Firm. Macquarie Private Wealth s services in New Zealand are provided by MENZ. Macquarie Bank Limited (ABN , AFSL No ) ( MBL ) is a company incorporated in Australia and authorised under the Banking Act 1959 (Australia) to conduct banking business in Australia. None of MBL, MGL or MENZ is registered as a bank in New Zealand by the Reserve Bank of New Zealand under the Reserve Bank of New Zealand Act Any MGL subsidiary noted in this research, apart from MBL, is not an authorised deposit-taking institution for the purposes of the Banking Act 1959 (Australia) and that subsidiary s obligations do not represent deposits or other liabilities of MBL. MBL does not guarantee or otherwise provide assurance in respect of the obligations of that subsidiary, unless noted otherwise. This research is general advice and does not take account of your objectives, financial situation or needs. Before acting on this general advice, you should consider the appropriateness of the advice having regard to your situation. We recommend you obtain financial, legal and taxation advice before making any financial investment decision. This research has been prepared for the use of the clients of the Macquarie Group and must not be copied, either in whole or in part, or distributed to any other person. If you are not the intended recipient, you must not use or disclose this research in any way. If you received it in error, please tell us immediately by return and delete the document. We do not guarantee the integrity of any s or attached files and are not responsible for any changes made to them by any other person. Nothing in this research shall be construed as a solicitation to buy or sell any security or product, or to engage in or refrain from engaging in any transaction. This research is based on information obtained from sources believed to be reliable, but the Macquarie Group does not make any representation or warranty that it is accurate, complete or up to date. We accept no obligation to correct or update the information or opinions in it. Opinions expressed are subject to change without notice. The Macquarie Group accepts no liability whatsoever for any direct, indirect, consequential or other loss arising from any use of this research and/or further communication in relation to this research. The Macquarie Group produces a variety of research products, recommendations contained in one type of research product may differ from recommendations contained in other types of research. The Macquarie Group has established and implemented a conflicts policy at group level, which may be revised and updated from time to time, pursuant to regulatory requirements; which sets out how we must seek to identify and manage all material conflicts of interest. The Macquarie Group, its officers and employees may have conflicting roles in the financial products referred to in this research and, as such, may effect transactions which are not consistent with the recommendations (if any) in this research. The Macquarie Group may receive fees, brokerage or commissions for acting in those capacities and the reader should assume that this is the case. The Macquarie Group s employees or officers may provide oral or written opinions to its clients which are contrary to the opinions expressed in this research. Important disclosure information regarding the subject companies covered in this report is available at 13 July