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Macquarie lifts F&P Healthcare price target by 7.3%

Macquarie said the stronger starting point and the lower New Zealand dollar assumptions supported higher revenue forecasts.

Rebecca Howard
Tue, 23 May 2017

Macquarie Group lifted its 12-month target price on Fisher & Paykel Healthcare by 7.3 percent and kept its 'outperform' rating after the company's full-year revenue growth beat expectations and as a weaker New Zealand dollar weighs in the exporter's favour.

The Australian investment house has a 12-month target price of $11, up from $10.25. The stock recently unchanged at $10.10.

F&P Healthcare yesterday posted an 18 percent gain in full-year profit, meeting guidance with record annual sales, and said revenue in the current year may reach $1 billion. Profit rose to a record $169 million in the 12 months ended March 31, from $143 million a year earlier, while operating revenue climbed 10 percent to $894 million.

"Revenue growth was stronger than expected, driven by a stronger-than-expected result from both home and hospital and higher-than-expected hedging gains," Macquarie said in its report.

However, it noted litigation costs over a patent dispute with ResMed were significantly higher than anticipated. F&P Healthcare competes with Resmed and Respironics and is currently engaged in a patent dispute with Resmed which generated $20.7 million in legal costs in the 2017 year. The company filed patent infringement proceedings against Resmed, which countered with its own suit claim that F&P Healthcare's OSA (obstructive sleep apnea) products infringed its patents.

According to Macquarie, F&P Healthcare has indicated selling, general and administrative (SG&A) spending - which includes litigation costs - will outpace sales growth by 4 percent in the 2018 financial year.

Macquarie said the stronger starting point and the lower New Zealand dollar assumptions - particularly against the euro and the British pound - supported higher revenue forecasts. However, increased litigation costs in the short to the medium term offset those gains, which led to a downward revision in earnings.

"We do not expect these costs to feature to the same degree in the longer term, and as a result have longer-term upgrades," Macquarie said.

The firm expects F&P Healthcare to generate revenue of $1.03 billion in the 2018 financial year, $1.14 billion in FY19 and $1.26 billion in FY20.


Rebecca Howard
Tue, 23 May 2017
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Macquarie lifts F&P Healthcare price target by 7.3%