EUR 850.00 For Business Accounts Only

Morningstar | Strong Momentum for GN in Both Segments During 2019

GN Group consists of two seemingly unrelated businesses: hearing instrumentation and audio products. While a combination of hearing aids and consumer and professional audio solutions seemingly lacks symbiosis, we believe it opens up future opportunities for GN Group in the nonmedical hearables market. The recent hearing aid market deregulation in the U.S., with the introduction of the over-the-counter, or OTC, category, blurs the boundaries between medical and consumer devices. Consumers’ demand is shifting toward connectivity and interoperability in the devices they wear, regardless of product nature (medical or consumer). GN Hearing’s first-mover advantage in the connectivity market should allow the company to capitalize on these trends.Within their respective niches, both businesses--audio and hearing--benefit from favorable trends. An ageing population, fairly low penetration rates in the developed world, and virtually untapped patient populations in emerging markets are the main drivers for the hearing aids segment. In the professional audio division, increased workforce mobility, noisy open-space offices, and remote collaboration drive demand for Unified Communication-enabled headphones. We believe GN Group can capitalize on these trends, but the company needs to continue reinvesting in R&D at a healthy clip so as not to fall behind the innovation curve. Given that it lacks the scale and capital of its larger peers, innovation is critical to GN Hearing’s narrow moat. In medical hearing devices, GN stands in contrast to the retail expansion strategy undertaken by its main peers, Sonova and Demant. We don’t believe GN’s competitive advantage as a mainly wholesale operator is currently at risk due to its peers’ retail expansion, as we estimate that the manufacturer-controlled retail segment is only at 15% globally. However, we feel that the industry is becoming slowly yet steadily bifurcated, with the independent channel under pressure from big-box retailers and wholesaler-owned retail. While this is a slow process, we anticipate GN will eventually be forced to either revisit its retail strategy or join forces with another industry player.