Sonic Healthcare (SHL) Share Trading Recommendation

Submitted by Craig Strzelecki on 28 February, 2007 - 06:24

Sonic Healthcare (SHL) have a retained Buy, Medium Risk rating from analyst Citigroup Investment Research (CIR). The company produced a 15% increase in cash generated from operations, delivered 21.6% EBITDA/revenues, PBT income increase of 8.8%, lower radiology earnings as forecast, and a lower effective tax rate. SHL reported 1H earnings of $93.5 million vs. CIR's A$89.9 million forecast. Core pathology revenues are up 16.5% to $675m, and pathology margins excluding CPL, expanded by a further 50bp to 21%. Pathology now represents 83% of SHL's revenue. Radiology revenues are flat as anticipated at 1.2%, and EBIT fell to $21.7m vs $28.7m in the pcp. CIR anticipate radiology will continue to decline as a proportion of the business. Management believes that radiology margins will improve from here due to recent restructuring. CIR forecasts have them declining from 2007 until 2009. SHL announced a new UK NHS contract which is material to TDL. No new investment in TDL is required. The contract is for five years and is 'multi-million pounds and material to TDL'. SHL is well positioned to continue to benefit outsourcing to the private sector by NHS. Rationalisation of AEL will be centred on Dallas and Tyler, with Dallas being closed and the business being funneled to Austin and some into Memphis. AEL's Nashville HO will close in July. SHL now has scale in the USA with revenues of about $400m. The court case in New Zealand re the Auckland pathology contract has concluded. In the event the awaited finding is not in SHL's favour, management states some asset write-down of an estimated $20m may occur.

Sonic Healthcare Limited is listed on the Australian Stock Exchange (ASX) under stock code SHL. You can view their investor website here. SHL was listed on the ASX on 9 August, 1971. Find out the meaning of the recommendations in this primer. Sonic Healthcare provides pathology services. Dr Colin S Goldschmidt is the Managing Director of Sonic Healthcare and Barry Patterson the Chairman. Browse for other stockbroker recommendations. You can use Instalment Warrants to trade SHL. Check your charts and good luck with your share trading!

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