Fisher & Paykel Healthcare

Transcription

1 NEW ZEALAND FPH NZ Price (at 03:59, 16 Mar 2015 GMT) Outperform NZ$6.63 Valuation NZ$ 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 5.5 Number shares on issue m Investment fundamentals Year end 31 Mar 2014A 2015E 2016E 2017E 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, March 2015 (all figures in NZD unless noted) 17 March 2015 Macquarie Securities (NZ) Limited Forecast slump in the Kiwi Event We have incorporated Macquarie s new currency forecasts; these forecasts see the Kiwi continue to weaken against the USD. We have also taken the opportunity to make a number of tweaks to our forecast assumptions. Impact Macquarie currency forecasts. The economics team have released new currency forecasts; there are some significant differences to the currency forecast used at the time of our last update in late For instance, they expect the Kiwi (NZD\USD) to drop to 0.65 by the end of 2015, which is down from the 0.79 forecast we used in November. Fisher and Paykel Healthcare sensitive to currency. The company s revenues are almost exclusively denominated in foreign currencies, and less than a half of this exposure is naturally hedged with costs dominated in foreign currencies. It is important to note that the valuation impact of the changes to currency forecasts is minimal (15 cps to our valuation) because the terminal year currency forecasts have not changed significantly; for instance, the long-term NZD\USD forecast has been reduced from $0.74 to $0.72. Gross margin expansion. We are a little reluctant to incorporate significant margin expansion in our valuations (far too often this potential ends up in the hands of customers). FPH s respiratory and acute care business operates in high barrier markets with limited competition, and so we have elected to assume they can hold on to the gross margin expansion driven by the increasing use of its Mexican manufacturing facilities. We now assume gross margin increases to 63.5% over the next three years on a constant currency basis. Terminal year capex. We have set our terminal year capex forecast equal to depreciation and amortisation. This represents a significant reduction in terminal year capex, but is arguably consistent with our 2% terminal growth forecast. Earnings and target price revision EPS forecast revisions: FY15=-0.1%, FY16=7.9% and FY17=19.3% Price target increased from $6.00 to $7.25. Price catalyst 12-month price target: NZ$7.25 based on a DCF methodology. Catalyst: Full year result Action and recommendation We rate FPH an outperform with a $7.25 price target. We think the high earnings multiples are justified: [1] the respiratory and acute care division has an exceptional strong market position and good growth driven by new applications. [2] the company has an exceptional strong new product pipeline. It is important to note that the company s earnings and valuation are sensitive to the Kiwi: this is a key risk to our positive view. Please refer to page 7 for important disclosures and analyst certification, or on our website

2 Decomposition of change in earnings and valuation We have made a number of changes to our FPH forecasts. For the sake of transparency we have included a couple of charts that decompose the changes and allow insights into their relative importance. Figure 1 provides a decomposition of our earnings changes into the two key components: currency and gross margin. The key thing to note that a large part of the medium term revisions are due to currency: significant changes to gross margin are swamped by a weak Kiwi. Fig 1 Decomposition of earnings revisions NPAT impact ($m) Currency Gross margin FY16 FY17 FY18 FY19 FY20 Source: Company data, Macquarie Research, March 2015 Figure 2 allows provides a waterfall of our valuation change. In contrast, to the earning changes displayed in Figure 1 the change to the capex assumption in our terminal year is a key driver. We think that the change is appropriate: a 2% terminal growth assumption implies that the company is in a very low growth steady state and growth capex is not required. Fig 2 Decomposition of valuation change Impact Old DCF Time/Roll fwd Terminal capex Margin Currency DCF Source: Company data, Macquarie Research, March 2015 Currency forecast changes The Macquarie economics team has revised their forecasts. This time the revisions include an adjustment to long-term Kiwi US dollar rate and so we have incorporated the changes in our FPH forecasts. Figures 3-6 provide a summary of the economic team s forecasts for FPH s key currency exposures. In FY14 only 2% of FPH s operating revenues were denominated in NZD, 48% were in USD, 24% in Euros, 6% in Australian Dollars and 5% in Japanese yen. 17 March

3 Fig 3 USD forecasts Fig 4 Euro forecasts Previous Previous Source: Macquarie Research, March 2015 Source: Macquarie Research, March 2015 Fig 5 Japanese Yen Fig 6 Australian Dollars Previous Previous Source: Macquarie Research, March 2015 Source: Macquarie Research, March 2015 Gross margin The other significant change we have made is to our gross margin assumption. Figure 7 shows the previous and gross margin forecast in constant currency. We now have the gross margin expanding at 100bps per annum for the next three years. The company is targeting bps per annum; if we assume they hit the top end of this target for the next three years then our valuation increased by $1ps. 17 March

4 Fig 7 Constant currency gross margin forecasts Gross Margin % 64.0% 63.0% Old 62.0% 61.0% 60.0% 59.0% 58.0% FY14A FY15F FY16F FY17F FY18F Source: Company data, Macquarie Research, March March

5 Fig 8 Financial summary PROFIT & LOSS 1H15a 2H15e 1H16e 2H16e PROFIT & LOSS FY14a FY15e FY16e FY17e Constant currency revenue Constant currency revenue Respiratory and acute care 163, , , ,023 Respiratory and acute care 303, , , ,348 Obstrustive sleep apena 130, , , ,240 Obstrustive sleep apena 243, , , ,938 Other and Distribution 5,359 5,359 5,359 5,359 Other and Distribution 14,879 10,717 10,717 10,717 Total 299, , , ,622 Total 561, , , ,003 NZ Dollar Profit & Loss NZ Dollar Profit & Loss Operating revenue 299, , , ,928 Operating revenue 568, , , ,647 Hedging 18,228 7,031-1,846-7,951 Hedging 54,584 25,259-9,797 2,647 Total revenue 317, , , ,978 Total revenue 623, , , ,294 COGS 125, , , ,117 COGS 258, , , ,246 Gross profit 192, , , ,861 Gross profit 365, , , ,048 Other Income 2,500 2,500 2,500 2,500 Other Income 3,700 5,000 5,000 5,000 SG&A 75,081 77,999 84,738 92,531 SG&A 141, , , ,528 R&D 31,338 30,882 32,114 35,261 R&D 54,146 62,220 67,374 74,655 EBITDA 88, , , ,569 EBITDA 173, , , ,864 Depreciation 13,917 13,375 13,296 13,745 Depreciation 26,744 27,292 27,041 29,106 Amortisation 1,754 1,996 1,801 1,927 Amortisation 3,149 3,750 3,728 4,360 EBIT 72,623 86,544 92, ,898 EBIT 143, , , ,397 Net interest expense 5,714 1,873 4,964 4,393 Net interest expense 6,835 7,587 9,357 3,120 Net profit before tax 66,909 84,671 87, ,505 Net profit before tax 136, , , ,278 Taxation 18,092 24,555 24,629 28,981 Taxation 39,611 42,647 53,611 71,198 Net profit after tax 48,817 60,117 63,333 74,523 Net profit after tax 97, , , ,080 EXCHANGE RATE ASSUMPTIONS 1H15a 2H15e 1H16e 2H16e EXCHANGE RATE ASSUMPTIONS FY14a FY15e FY16e FY17e 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 2H15e 1H16e 2H16e MULTIPLES AND PER-SHARE METRICS FY14a FY15e FY16e FY17e EPS (reported) EPS (reported) PER (reported) 37.6x 30.7x 29.1x 24.8x PER (reported) 37.4x 33.8x 26.8x 20.2x Payout ratio 66% 65% 70% 52% Payout ratio 70% 65% 60% 70% DPS (cps) DPS (cps) Imputation 100% 100% 100% 100% Imputation 100% 100% 100% 100% Dividend yield (gross) 2.4% 2.9% 3.3% 2.9% Dividend yield (gross) 2.6% 2.7% 3.1% 4.8% NTA per share NTA per share P/NTA 9.3x 8.8x 8.4x 7.8x P/NTA 9.3x 8.8x 7.8x 7.0x EV/EBIT 26.0x 21.8x 20.3x 17.5x EV/EBIT 26.3x 23.7x 18.8x 14.7x EV/EBITDA 21.4x 18.5x 17.5x 15.3x EV/EBITDA 21.8x 19.9x 16.3x 13.0x Weighted average shares Weighted average shares KEY RATIOS 1H15a 2H15e 1H16e 2H16e KEY RATIOS FY14a FY15e FY16e FY17e Revenue growth (constant currrency) 12.7% 8.2% 12.1% 11.0% Revenue growth (constant currrency) 13.5% 10.3% 11.5% 10.5% Revenue growth (NZD) 4.5% 7.4% 15.6% 17.4% Revenue growth (NZD) 12.1% 6.0% 16.6% 14.1% NPAT growth 9.7% 14.4% 29.7% 24.0% NPAT growth 26.0% 12.2% 26.6% 32.8% EPS growth 10.1% 12.4% 29.0% 23.8% EPS growth 25.4% 11.3% 26.1% 32.6% DPS growth 7.4% 0.0% 37.1% 0.0% DPS growth 0.0% 3.2% 16.8% 53.8% ROA 23.2% 26.8% 27.5% 30.3% ROA 22.8% 24.6% 28.2% 33.2% ROE 23.6% 27.5% 27.6% 30.0% ROE 23.9% 24.9% 27.8% 32.8% Debt/(debt + equity) 14.6% 13.5% 13.1% 11.2% Debt/(debt + equity) 15.7% 13.5% 11.2% 9.1% Interest coverage 23.6x 31.0x 34.9x 40.1x Interest coverage BALANCE SHEET 1H15a 2H15e 1H16e 2H16e BALANCE SHEET FY14a FY15e FY16e FY17e Cash and cash equivalents 6,882 6,882 6,882 6,882 Cash and cash equivalents 10,438 6,882 6,882 6,882 Trade and other receivables 100, , , ,893 Trade and other receivables 94, , , ,220 Inventories 100, , , ,953 Inventories 94, , , ,235 Property, plant and equipment 356, , , ,638 Property, plant and equipment 349, , , ,012 Other assets 61,549 60,250 61,085 62,344 Other assets 80,939 60,250 62,344 64,016 Total Assets 625, , , ,711 Total Assets 630, , , ,365 Trade and other payables 80,217 82,353 88,083 96,715 Trade and other payables 78,001 82,353 96, ,176 Interest-bearing liabilities 98,432 93,993 95,006 86,921 Interest-bearing liabilities 109,356 93,993 86,921 77,910 Other liabilities 32,934 32,934 32,934 32,934 Other liabilities 36,846 32,934 32,934 32,934 Total Liabilities 211, , , ,569 Total Liabilities 224, , , ,020 Shareholders' equity 414, , , ,141 Shareholders' equity 406, , , ,344 DCF VALUATION Total $/share % CASH FLOW FY14a FY15e FY16e FY17e Riskfree rate 4.50% Receipts from customers 591, , , ,320 Equity market risk premium 7.00% Payments to suppliers and employees -452, , , ,250 Asset beta 0.75 Other cashflows from operations -35,566-43,178-68,761-73,376 WACC 8.76% Net operating cash flows 104, , , ,694 terminal growth rate 2.00% Purchases of PP&E -27,305-44,032-53,899-61,481 Other cashflows from investments -4,555-5,649-5,823-6,032 Forecast cashflows 1,260, % Net investment cash flows -31,860-49,681-59,722-67,512 Terminal value 2,644, % Issue of share capital 27,436 19,775 4,163 6,415 Enterprise value 3,904, % Net increase in debt (pre fx impact) -32,157-15,858-11,075-7,305 Net debt 87, % Dividends paid -67,518-77,565-83, ,292 Equity value 3,817, % Net financing cash flows -72,239-73,648-90, ,182 Source: Company data, Macquarie Research, March March

6 Fundamentals Macquarie Wealth Management Macquarie Quant View The quant model currently holds a marginally 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. 117/377 Global rank in Health Care Equip. & Services % of BUY recommendations 40% (2/5) Number of Price Target downgrades 1 Number of Price Target upgrades 3 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. ResMed Inc. 1.4 ResMed Inc. Cochlear Summerset Group Ryman Healthcare Fisher & Paykel Healthcar MetlifeCare Cochlear Summerset Group Ryman Healthcare Fisher & Paykel Healthcar MetlifeCare % -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. ResMed Inc. Cochlear Summerset Group Ryman Healthcare Fisher & Paykel Healthcar MetlifeCare ResMed Inc. Cochlear Summerset Group Ryman Healthcare Fisher & Paykel Healthcar MetlifeCare % -40% 10% 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 Turnover(USD) 125 Day Turnover (USD) 20 Day Operating Leverage Inc. DPS Growth FY1 Altman Z-Score SAL Growth 5yr Historic Negatives Positives -36% -44% -34% -34% 31% 28% 26% 35% -60% -40% -20% 0% 20% 40% 60% 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(/377) Percentile relative to market(/408) 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) 17 March

7 Important disclosures: Recommendation definitions Macquarie - Australia/ 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 31 December 2014 AU/NZ Asia RSA USA CA EUR Outperform 51.80% 58.06% 45.07% 44.42% 60.54% 46.81% (for US coverage by MCUSA, 5.29% of stocks followed are investment banking clients) Neutral 31.80% 27.37% 30.99% 50.10% 35.37% 33.51% (for US coverage by MCUSA, 3.08% of stocks followed are investment banking clients) Underperform 16.39% 14.57% 23.94% 5.48% 4.08% 19.68% (for US coverage by MCUSA, 0.44% 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, March month target price methodology FPH NZ: NZ$7.25 based on a DCF methodology Company-specific disclosures: Important disclosure information regarding the subject companies covered in this report is available at Date Stock Code (BBG code) Recommendation Target Price 20-Nov-2014 FPH NZ Outperform NZ$ 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$ May-2012 FPH NZ Neutral NZ$ Apr-2012 FPH NZ Neutral NZ$2.15 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. 17 March

8 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 Zealand by Macquarie Equities Zealand Limited ( MENZ ) an NZX Firm. Macquarie Private Wealth s services in 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 Zealand by the Reserve Bank of Zealand under the Reserve Bank of 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 17 March