COH - Cochlear Limited

[McLovin]

Thanks for pointing out that inconsistency, though what I meant is that while management has an idea of the expenses of a 1% failure rate of the CI512 product, they haven't even mentioned what exactly is the failure rate now. What do they estimate it to be? Could these failures be merely a precursor of many more? Does management's $130-$150 million provision take these questions into account? These are lingering questions that make me hesitant to buy right now.

It's about $20-40k (depending on geographical location) to replace a CI (you can work the maths out at various failure rates). The current provision relates to recalling shelf stock, not replacing failed implanted devices.

 

[Mr Editor]

It's about $20-40k (depending on geographical location) to replace a CI (you can work the maths out at various failure rates). The current provision relates to recalling shelf stock, not replacing failed implanted devices.

OK, apologies for my misunderstanding. My next question is will the cost to replace the failed implants come out of the company's pocket or will it be a responsibility of the recipients of the failed plants?

 

[McLovin]

OK, apologies for my misunderstanding. My next question is will the cost to replace the failed implants come out of the company's pocket or will it be a responsibility of the recipients of the failed plants?

The implant is under a 10 year warranty, so it will be the company's responsibility (the 20-40k figure is the cost to the company including the cost of surgery to replace the unit) . There is a warranty provision but the amount is not disclosed. See Note 3(g).

 

[McCoy Pauley]

Looks like COH's share price hit a solid brick wall at about $60/share and it's fallen back towards $50/share (including a 2% drop today, so far). I'm not presently able to post a chart (will try to do so later today), but having a look at a three-month daily chart, COH's price rose to the giant gap that arose in mid-September 2011 and now it's fallen back significantly.

I assume that much of the selling is driven by people who bought in a fair while ago and are scrambling to close their positions at any price. Volume doesn't seem to be falling with any great certainty at this stage, so there's a bit of consolidation still to occur before all the sellers are shaken out.

The beauty is that if the price continues to fall, it will present another opportunity to pick up some more COH shares at a decent price as I still consider COH to be a solid company with continuing excellent prospects that are not, in the long-term, affected significantly by the recall.

 

[robusta]

Looks like COH's share price hit a solid brick wall at about $60/share and it's fallen back towards $50/share (including a 2% drop today, so far). I'm not presently able to post a chart (will try to do so later today), but having a look at a three-month daily chart, COH's price rose to the giant gap that arose in mid-September 2011 and now it's fallen back significantly.

I assume that much of the selling is driven by people who bought in a fair while ago and are scrambling to close their positions at any price. Volume doesn't seem to be falling with any great certainty at this stage, so there's a bit of consolidation still to occur before all the sellers are shaken out.

The beauty is that if the price continues to fall, it will present another opportunity to pick up some more COH shares at a decent price as I still consider COH to be a solid company with continuing excellent prospects that are not, in the long-term, affected significantly by the recall.

Funny that you posted this today, I just bought a parcel for my SMSF @ $51.96. Probably too early or too late depending how you look at it but definately a long term keeper IMO.

 

[tronic72]

The market is a fickle beast.

At the time of the recall, COH had a market cap of $4.11 Billion. Today it has a MC of just over $3 billion. COH is traditionally very conservative with its estimates with a write-back likely on their $130-$150 mil estimate.

A friend of mine recently had some issues with a supplier of hers and was explaining how they had contacted the customers, reassured them and offered

It's almost laughable that over a billion dollars would be wiped from a company that until a few months ago, was on any savvy investors Christmas list.

All I can say is; thanks Santa

 

[tronic72]

Looks like COH's share price hit a solid brick wall at about $60/share and it's fallen back towards $50/share (including a 2% drop today, so far). I'm not presently able to post a chart (will try to do so later today), but having a look at a three-month daily chart, COH's price rose to the giant gap that arose in mid-September 2011 and now it's fallen back significantly.

I assume that much of the selling is driven by people who bought in a fair while ago and are scrambling to close their positions at any price.......

I suspect there might be quite a few profit takers in the selling camp. I got in and out a few times from the lows and a 30% bounce is almost unheard of in this market...

M2c

 

[McCoy Pauley]

COH's share price up 4.3% today so far against a flat market, on top of a ~1.5% increase on Monday. No market-sensitive announcements released publicly for quite some time. Nothing I could find online to suggest the big spike in the share price. I wonder if the ASX will share my suspicions.

By the way, I did note that one of the founders of what became Cochlear, Dr Mike Horshorn died on the weekend from cancer, and the inventor of the bionic ear implant, Professor Graeme Clark, was awarded the Florey Medal for his work in developing the implant.

http://www.theaustralian.com.au/hig...the-florey-medal/story-e6frgcjx-1226201244590

http://www.theaustralian.com.au/bus...er-mike-hirshorn/story-fn91v9q3-1226201846202

 

[robusta]

Nice broker update on COH

http://finance.ninemsn.com.au/newscolumnists/other/8390367/hearing-cochlears-call

 

[McCoy Pauley]

Cochlear has been given a fair degree of coverage in recent editions of the AFR in relation to its ongoing issues with the AMWU and negotiating new agreements for its manufacturing workers, including an article today.

None of the articles are, IMO, particularly relevant to the ongoing performance of the share price, but it does demonstrate that not everything is rainbows and skittles at the manufacturing plant (for quite some too, apparently).

 

[TheAbyss]

Cochlear has been given a fair degree of coverage in recent editions of the AFR in relation to its ongoing issues with the AMWU and negotiating new agreements for its manufacturing workers, including an article today.

None of the articles are, IMO, particularly relevant to the ongoing performance of the share price, but it does demonstrate that not everything is rainbows and skittles at the manufacturing plant (for quite some too, apparently).

I am guessing it is the same metal workers union people looking for a pay rise who are responsible for the Brazing issues which caused the recall? Pity staff cant be held accountable for their errors unlike senior management who wear the blame and lose their jobs for staff failings.

Onwards and upwards COH.

 

[skc]

Good news by COH... basically they've found the root problem with the manufacturing process that led to the recall.

Not sure how I missed the news earlier today but in now at $60.35.

Good swing trading opportunity if it closes above $61, leading to at least a partial close of that massive gap back in Sept.

 

[tminus]

Was the news leaked out earlier there was a jump at 1.30 pm with 4x the volume then at 2.20pm there was an article on AFR about it being a water issue.

 

[skc]

Was the news leaked out earlier there was a jump at 1.30 pm with 4x the volume then at 2.20pm there was an article on AFR about it being a water issue.

The release came out at 14:21:00 on WebIress...

It wasn't marked market sensitive (a mistake imo) so there was no stoppage in trading. The spike at 1:30pm or so does look like a leak.

Anyhow... easiest trade all year for me.

 

[McCoy Pauley]

Looks to have closed at $64.33/share, a gain of 16.4%. Very interesting that COH management decided not to mark the announcement as price-sensitive.

 

[robusta]

Anyhow... easiest trade all year for me.

COH to me is a long term hold, they have ~60% market share of a market that is growing ~12.5% PA.

Compound return to shareholders of 12.5% (I think they will do better) over a decent time period should workout OK.

Good luck with your strategy skc, hope you make a killing on COH

 

[McLovin]

Good to see the fail rate is falling off with the recall, rather than staying flat or continuing to rise. Hopefully, that trend continues and points to the units failing early in their life rather than the fail rate being spread.

Good Christmas this year for me. DMX last week, COH this week.

 

[McCoy Pauley]

Some profit-taking occurring this morning so far. Down just under 1%, but it was at one point down more than 2%.

Funnily enough, I spotted yesterday what appears to me to be a short-term symmetrical triangle (not a textbook one, though) forming on the chart before the share price popped with the announcement yesterday afternoon. Refer to the attached chart.

I'm not a technical analyst nor do I invest on technical grounds, but I thought the pattern looked quite striking when I noticed it.

 

[robusta]

Just noticed COH have snuck into the top 10 shorted stocks on the ASX

http://www.thebull.com.au/articles/a/22191-top-10-shorted-stocks.html

Maybe I will get the chance to buy some more in the future.

 

[McCoy Pauley]

That would partly explain why COH shares are underperforming the market so far this year.

In hindsight, the pop on management's announcement to the market late last year was overdone considerably and the share price will continue to retrace.

It will be interesting to see what comments about the product recall management inserts into the first half results which are likely to be released towards the end of February (if past history is a guide).

I read an interesting piece about a private hospital being established in a Sydney suburb in yesterday's AFR. The piece has nothing to do with COH except for a quote in the article that in order to run a successful hospital, the hospital administrators need to keep the doctors onside, because essentially the doctors decide where their patients go.

I think this is quite apt for COH and other medical device manufacturers - doctors will effectively decide which implant will be used to improve their patients' hearing. Thus, the strategy COH has adopted of being ultra-careful with the product recall is designed, in part, to show the doctors and surgeons that they are being very risk averse and that they can continue to trust COH to build and supply quality products. Therefore, while the short-term reputation of COH might decline, in the long-term, the strategy should pay handsome dividends.