FPH

Headlines

The Fisher & Paykel result is out.

Detail

The revenue bump from COVID was enormous, with approximately “10 years’ worth of pre-COVID hardware sales” according to management.

As the pandemic wanes, and Omicron (and its later variants) continues to prove milder (less need for ventilation) those bumper sales represent a cyclical earnings peak, from which they will decline, likely towards trend. But as always there is a strong possibility of an overshoot (because customers have over-ordered) resulting in inventory gluts and “pull forwards” in demand, which will leave an earnings hole.

Today’s result shows they are working through the earnings overhang well, with NPAT of $376m, down 28% on PCP, and down 30% in constant currency, but bang in line with forecast estimates (shown below).

However, FPH has declined to provide guidance, which, for a stock on a still relatively high multiple (30x forward on declining earnings) usually proves problematic.

Further, based on some of the commentary (OSA diagnosis rates, and product availability)…

…sales estimates might need to come down further.

Like most stocks, margins and working capital are difficult to manage given supply chain kerfuffles (freight and shipping costs, availability, energy costs) which compounds the additional downward pressure on revenues and earnings from normalisation in demand. That’s bad.

However, we are quite interested in FPH, as a good quality secular growth stock, but have averred due to the valuation. That valuation is improving daily, at the moment.

We will watch how it trades today.

Important Information: This document has been prepared by Aequitas Investment Partners ABN 92 644 165 266 (“Aequitas”, “our”, “we”), a Corporate Authorised Representative (no. 1284389) of C2 Financial Services, (Australian Financial Services Licensee no. 502171), and is for distribution within Australia to wholesale clients and financial advisers only.

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Please note that past performance is not a reliable indicator of future performance.

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