Report
Johannes Faul
EUR 850.00 For Business Accounts Only

Morningstar | Fisher and Paykel Healthcare Remains Expensive

We make no changes to our NZD 11.00 per share fair value estimate for narrow-moat-rated Fisher & Paykel Healthcare, and continue to rate the firm as overvalued. Our fiscal 2019 net profit after tax forecast of NZD 210 million stands and is at the top end of management's NZD 205-210 million guidance. However, we increase our fair value estimate for the Australian CDIs to AUD 10.70, due solely to the appreciation of the New Zealand dollar against the Australian dollar with the exchange rate currently at 1.03.

At NZD 14.67, shares in Fisher & Paykel are trading at a forward P/E multiple of around 40 and a 33% premium to our fair value estimate. While the firm's two segments are exposed to positive industry trends, we think upside is already priced in. As the global leader with an estimated market share of more than 70%, Fisher & Paykel has carved out a narrow economic moat in its key hospital segment. We continue to expect double-digit annual revenue growth with switching costs ensuring strong recurring revenue. Hospital currently contributes 60% of consolidated revenue, and we expect this to increase to around 70% by fiscal 2023.

Fisher & Paykel's homecare segment targets the large, underpenetrated obstructive sleep apnoea, or OSA, market. We expect the market to continue its strong growth trajectory. However, unlike the hospital segment, the firm lacks pricing power and is a distant third player in an OSA industry dominated by ResMed and Phillips. We forecast a revenue CAGR of 7% over the five years to fiscal 2023, driven principally by the adoption of consumables, such as masks.
Underlying
Fisher & Paykel Healthcare Corporation Limited

Fisher & Paykel Healthcare, together with its subsidiaries, is a designer, manufacturer and marketer of medical device products and systems for use in respiratory care, acute care and the treatment of obstructive sleep apnea (OSA). Co.'s respiratory and acute care products include heated humidifier and respiratory products that are used in the treatment of a variety of medical conditions which interfere with normal respiration. Co.'s OSA products include the continuous positive airway pressure (CPAP) therapy devices, which is used in the treatment of OSA. CPAP is delivered through a mask attached to a flow generator device which generates airflow and enough pressure to keep the airway open.

Provider
Morningstar
Morningstar

Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.

Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.

We have operations in 27 countries.

Analysts
Johannes Faul

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