Morningstar | Sonova Finishes Fiscal Year Strong; Maintaining FVE
Sonova's second-half results showed material sequential improvement, largely due to a successful launch of the Marvel platform. We're maintaining our fair value estimate and narrow moat rating. The shares appear slightly overvalued at current levels.Sonova's strong finish to the year in the wholesale business was largely expected as the firm's November launch of Audeo Marvel reaccelerated unit volume and meaningfully improved pricing. The hearing instruments business (wholesale) overall was up 8% in local currency in the second half (versus 0.5% in the first half), with Europe, the Middle East, and Africa growing in double digits and the United States rebounding from a terrible first half. Notably, the U.S. recovery doesn't include the Veterans Affairs business, where Sonova had lost significant market share over the past few years. Marvel entered the VA channel early May, and the company suggests that the early response has been very positive. It is clear that the increased competition and Sonova's own missteps have resulted in a more challenging environment, which limits the firm's ability to regain material share in VA. However, we forecast Marvel's adoption rate to be high enough to reverse the decline and, along with the Costco channel (where Sonova just updated its portfolio), should support the high-single-digit growth in wholesale.
In the audiology care (retail) business, performance was slightly ahead of the first half and the overall market. A 5.5% organic growth rate in the half was somewhat aided by easier comparisons, particularly in the U.S.. Finally, the cochlear business, adjusted for last year's China tenders, was up 8.7% in local currency, in line with our forecast.
Sonova showed good improvement on the margin line, up 70 basis points, materially aided by strong pricing. This trend should extend into the fiscal 2020, supporting the company's 9%-13% EBITA local-currency growth target.
Sonova Holding is a hearing instrument manufacturer based in Switzerland. Co. specializes in the design, development, manufacture, and worldwide distribution of technologically advanced wireless and hearing systems for adults and children with hearing impairment. Co. offers a range of digital hearing instruments, along with high tech specialty products and complementary wireless communications systems. Co. comprises two hearing instrument divisions, Phonak and Unitron Hearing, as well as Phonak Communications, a developer of wireless communication devices for both hearing instrument and other applications.
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