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Morningstar | Steady Underlying Trends in William Demant's Trading Update

William Demant's third-quarter update showed little change in underlying industry and company dynamics, and we're maintaining our fair value estimate and narrow moat rating.

The Opn platform continues to deliver solid performance in key channels, including U.S. Veterans Affairs, where the firm's share now sits at an impressive 20.6% compared with 13.8% a year ago. The importance of the VA to the global hearing marketplace can't be understated; it is typically categorized as a "premium" channel and thus enjoys some of the better pricing for manufacturers. Further, manufacturers' share there tends to be responsive to true innovations, and thus Demant's rapid ascension in the ranks is a clear testament to Opn's advantages. The company also called out good Opn trends in the independent channel in the U.S., although it noted that competition did intensify, which we attribute to a refreshed product portfolio from Sivantos in particular.

Outside the U.S., the wholesale business showed little deviation from earlier trends. Germany and the U.K. were weak due to the Audionova loss in the former and weaker National Health Service volume in the latter. The NHS weakness artificially inflates average selling prices for the firm (given its lowest average price point among all major channels), but this business still generates above-average profitability for Demant and thus has provided meaningful drag on the overall performance.

Offsetting the U.S. momentum in wholesale is the global retail business, although Demant noted some recovery in the U.S. portion. The company appears to be still ceding market share to Amplifon, and we don't anticipate the U.S. retail model to be particularly successful even with the ongoing restructuring efforts. The European retail business under the Audika brand has a much better outlook, in our view, as unlike in the U.S., the company has the ability to concentrate share in certain markets and drive above-market growth.