Morningstar | ResMed’s Strong Sales Momentum Continued in 1Q. Our FVE Is Unchanged at USD 101
We retain our fair value estimate of USD 101 on narrow-moat ResMed following the in line results for the first quarter of fiscal 2019. Our fair value estimate per CDI is unchanged at AUD 14.20, based on an AUD/USD exchange rate of 0.71. At current prices, shares are trading close to our intrinsic assessment.Global sales grew by 12.3% in the first quarter, tracking our full-year fiscal 2019 estimate of 12.1%. The growth was driven by both masks and devices, in the Americas as well as the rest of the world.
The software as a service, or SaaS, segment had the strongest growth at 25%, but off a relatively small base, representing only 8% of total revenue in the quarter. SaaS revenue was boosted by the AUD 126 million acquisition of HealthcareFirst at the beginning of the quarter. Organically, we estimate the Brightree business only grew by 8%.
The weakest category were masks sales in Europe, Asia and other markets, growing at 6% in constant currency, or CC, terms. However, despite the weak growth rate in Europe, ResMed managed to maintain its market share. It's taking time to penetrate the various European countries with new devices such as the AirFitF30 mask, introduced in the quarter. We expect sales growth in masks to pick-up as fiscal 2019 progresses.
Sales of devices grew strongly globally, averaging 14% in CC. In the Americas, devices revenue increased by 9% in the quarter, while devices sales in the rest of the world grew by 20% in CC.
At the group level, gross margins of 58.3% were slightly below our unchanged full-year estimate of 58.5%. We expect ongoing manufacturing and procurement efficiencies to maintain gross profit margins at current levels, offsetting deflation in average selling prices. Revenue growth was well ahead of increases in overhead costs and higher expenses in research and development, resulting in significant operating leverage. Underlying operating margins increased by some 290 basis points versus the previous first quarter.
Non-GAAP net income increased by 23% to USD 116.3 million. The board declared a dividend of USD 37 cents per share, representing a payout ratio of 46% on non-GAAP EPS of USD 0.81.
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