COH - Cochlear Limited

[robusta]

Results out today, I thought they were OK. Perhaps the market was expecting better. They did not do as well this half with their FX contracts.

 

[McCoy Pauley]

Like you, robusta, I thought the results looked okay at first blush, but Cochlear reduced its franking rate to 40%, down from 60%, and the rise in the interim dividend was only 5c/share. Share price was smashed down almost 10% today. Cochlear doesn't give forward looking estimates, so the market has nothing concrete to model the second half of the year against.

I guess that the market is used to miracles from Cochlear, and the fact that revenue and NPAT was pretty much flat for the first half of the year simply wasn't good enough.

I'm still sitting on some good unrealized capital gains, so I'm not really in a hurry to sell at this stage, and I expect the share price to recover in the next few months, when people realize that the company is still a well-managed company, notwithstanding the fallout from the voluntary recall.

 

[McCoy Pauley]

According to Bloomberg, analysts have written in notes to clients that the flat result indicates a loss of market share in developed countries.

 

[notting]

14% decline on sales margin didn't help.
Nearly went short at 76 but I love it too much so probably wouldn't have managed it very well and decided to wait to buy.

 

[robusta]

So NPAT at 77.7 mil missed expectations by a couple of million.

Here is the view from the lovely Juliette Saly from Comsec.

http://www.brrmedia.com/event/109538/juliette-saly-market-analyst-commsec

The fx gains in the previous reporting period were 36.3 million, now 23.5 million. They are coming back from the recall and competing with the high Aussie $, in my opinion not a bad result considering those headwinds.

The recent rally in the share price followed by today's fall all seem a bit short term to me, I will look forward to seeing the full year results in six months time.

 

[notting]

The recent rally in the share price followed by today's fall all seem a bit short term to me.

Scary part is that that's what people were saying after the recall announcement.

Volume was highest for 12months, which adds to the plunge picture.
I'd like to see that and make another disgracefully irresponsible buy.

 

[robusta]

Scary part is that that's what people were saying after the recall announcement.

Volume was highest for 12months, which adds to the plunge picture.
I'd like to see that and make another disgracefully irresponsible buy.

True if the price fell below $60.00 maybe towards $55.00 I would have to get all exited again.

 

[McCoy Pauley]

So NPAT at 77.7 mil missed expectations by a couple of million.

Here is the view from the lovely Juliette Saly from Comsec.

http://www.brrmedia.com/event/109538/juliette-saly-market-analyst-commsec

The fx gains in the previous reporting period were 36.3 million, now 23.5 million. They are coming back from the recall and competing with the high Aussie $, in my opinion not a bad result considering those headwinds.

The recent rally in the share price followed by today's fall all seem a bit short term to me, I will look forward to seeing the full year results in six months time.

Interesting. I was listening to Market Day podcast from yesterday on the way into work this morning, and Market Day suggested that COH missed estimates by up to $10 million.

I note that COH is close to dropping through $70/share this morning.

 

[McLovin]

It looks as though COH lost some market share to AB because of the recall, despite saying the fallout had been contained. Sonova reported a big jump in their CI for the last half (Swiss reporting April to September 2012). I'd say that COH was pretty much flat and the spike in Apac sales can be atributed to a single Chinese government contract win back in May last year. In hindsight, at >$80 there was little hope of meeting expectations. The full year result will be telling. If sales are still flat then (in LC), there might be a problem.

 

[RandR]

It looks as though COH lost some market share to AB because of the recall, despite saying the fallout had been contained. Sonova reported a big jump in their CI for the last half (Swiss reporting April to September 2012). I'd say that COH was pretty much flat and the spike in Apac sales can be atributed to a single Chinese government contract win back in May last year. In hindsight, at >$80 there was little hope of meeting expectations. The full year result will be telling. If sales are still flat then (in LC), there might be a problem.

Even now after the drop COH is still priced for a LOT of growth. compare it to the multiples other (very solid) business are trading at with real more 'certain' growth makes it hard to justify the COH investment case just now. If growth is stalling there will be a big problem with the company being rerated effectively by the market at much lower multiples of earnings.

 

[coolcup]

I bought some today... value trap?? perhaps...

Companies like this are generally bottom left to top right type charts. When they rarely crash like this, it almost always ends up being a great time to buy. They are still market leaders in their field with 60% market share, their first ever product recall which was voluntary (only 1% failure rate in devices recalled) and their competitors have a much higher incidence of device failure. I felt willing enough to back the management team to turn the ship around following the recent glitch. Any thoughts??

 

[Knobby22]

They are a one product company and so can lose profits quite quickly. For the first time they have an organised competitor and they have to re-release their failed unit. Another concern is that they went up too quick. They are a bit of a market darling and though it is better buying today, I would want a lower price as the risks are higher.

 

[robusta]

I bought some today... value trap?? perhaps...

Companies like this are generally bottom left to top right type charts. When they rarely crash like this, it almost always ends up being a great time to buy. They are still market leaders in their field with 60% market share, their first ever product recall which was voluntary (only 1% failure rate in devices recalled) and their competitors have a much higher incidence of device failure. I felt willing enough to back the management team to turn the ship around following the recent glitch. Any thoughts??

You could well be right I get the feeling I will look back in a few years and wonder why I didn't top up this week. Another 10 to 15% drop from here will be required before I would buy however.

If Cochlear can get it right compared to their competitors the growth should be satisfactory from here.

 

[tinhat]

I kicked myself for not buying in late 2011.

I would just point out that on a monthly chart, if the last top ($82.87) was lower than the $85 top in May 2011. I personally would be interested in COH if it down around $60.

 

[notting]

I would just point out that on a monthly chart, if the last top ($82.87) was lower than the $85 top in May 2011. I personally would be interested in COH if it down around $60.

Yeah, mid 50s for me.
Probably a bit conservative but this will go down as a second strike and potential perception changer for long term faithfuls which may also cause a longer flat consolidation unlike the big V it just completed.
I heard of one downgrade today to $59 and was told that there have been whispers leading up to this to short it!
I'm kicking myself now that I didn't take the $76 short yesterday.
If I believe what I'm writing I should be in there at any level above $70.
So I tell myself to put up or shut up!

 

[McLovin]

Even now after the drop COH is still priced for a LOT of growth. compare it to the multiples other (very solid) business are trading at with real more 'certain' growth makes it hard to justify the COH investment case just now. If growth is stalling there will be a big problem with the company being rerated effectively by the market at much lower multiples of earnings.

Absolutely correct. I sold yesterday. The market is growing at 10-15%/year but COH's sp implies that it will grow faster than the market. Very hard to do when you already have 70% of the market. Not to mention that AB is finally getting its act together.

Of course I knew this before the results announcement but I was greedy.

 

[robusta]

Funny thing, perception Cochlear has had 10 years of fantastic growth, now they are being hammered by the market for the most recent half revenue only growing 9% while the margins are flat at best.

Cochlear have been hit by the perfect storm recently, being hit with the recall followed by Advanced Bionics getting their act together. It will be interesting to see their reaction.

Interesting times indeed maybe Advanced Bionics have the technology lead at the moment, I will look forward to seeing what the Cochlear R&D machine can come up with. Cochlear have been undisputed world champs for a awhile, is Advanced Bionics a contender or a pretender?

 

[robusta]

Looks like the brokers are still trying to develop a consensus.

http://www.fnarena.com/index2.cfm?type=dsp_newsitem&n=AD47DFF8-0BC7-27FD-E15A7358CF4FE328

 

[McCoy Pauley]

Anyone catch Kohler's interview with Dr Chris Roberts, the Cochlear CEO, on Inside Business yesterday? I was out so I've only seen a news report this morning, but it suggests that Cochlear is looking to grow its footprint in China and other emerging markets?

 

[clinta44]

You can catch it here. Kohler is a douche, but He seems to get a few good interviewee's that are worth listening too!

http://www.abc.net.au/insidebusiness/content/2011/s3687050.htm