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No sleep lost as ResMed posts positive FY17 result

Morningstar with AAP  |  03 Aug 2017Text size  Decrease  Increase  |  

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Sleep apnoea technology company ResMed has posted a positive but somewhat mixed result for FY17, reporting $US2.1 billion annual revenue. Shareholders will receive a dividend, with the fourth-quarter dividend up 6 per cent on the previous quarter, lifting the full year payout ratio to 56 per cent.


Morningstar's senior analyst covering healthcare, Chris Kallos, says the ResMed (ASX: RMD) result was "broadly in line with our expectations".

"Nonetheless, strengthening of the Australian dollar, coupled with ramping-up of litigation-related legal costs over fiscal 2017, drove selling, general and administrative (SG&A) expenses higher as a percentage of revenue," he says.

These contributed to the lower-than-expected net income of $US342 million, compared with consensus forecasts of $US400 million and Morningstar's $US427 million forecast.

However, Kallos remains positive on ResMed's medium- to longer-term prospects, and agrees with management's assurances that legal costs will ease over fiscal 2018, "leading to a moderation in SG&A".

ResMed is among a basket of large-cap ASX 200 stocks mentioned by Morningstar's head of equities research, Peter Warnes last month, particularly because of their relatively high US-dollar exposure.

Also on the upside, Morningstar's Kallos highlights the company's move into cloud-connected devices targeting sleep apnoea, with "increasing recognition of the economic benefits of cloud-connected monitoring by clinicians".

"We believe this trend towards digital and connected care should add meaningfully over time," Kallos says.

ResMed's fourth-quarter revenue in the Americas rose 8 per cent to $US350.2 million compared to a year earlier, and revenue in the combined Europe, Middle East and Africa and Asia-Pacific markets rose by 6 per cent to $US206.5 million.

The drop in the share price--which was down 5 per cent to 50.5 cents at 3pm yesterday--may reflect market disappointment in the volume growth in sales of some products including masks, which had been impacted by supply constraints arising from the manufacturing process, according to ResMed chief executive Mick Farrell. But he says those supply problems have been resolved.

In the fourth quarter, ResMed launched two new products: the AirMini air pump for travellers, which ResMed says is the world's smallest CPAP (continuous positive airway pressure) machine; and the AirTouch mask, ResMed's softest-ever CPAP mask.

Also on the product front, Farrell says the adoption rate of the AirMini by consumers is encouraging.

"In geographies like Australia, New Zealand, Singapore, Hong Kong and the UK where there's a strong direct consumer channel, patients have been really running to it (the AirMini)," Mr Farrell says.

"In the US, we're appealing to home-care providers, and we're starting to make some good sales ... so I think that's going to be a good runway over the next 12, 24 months."

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