SHL/Sonic Healthcare

Sonic held their AGM. They reiterated guidance, but made note of a more pronounced than normal skew, given a mix of recent acquisitions, and of cost out programs (e.g. with cost out, you pay upfront and get the benefit later, a simple example being redundancies, you pay 3 months salary upfront, and get the benefit of reduced expenses across the rest of the year).

We think it’s fine, we are not at all worried about Sonic’s longer term earnings trajectory.

Something we do like, and the AGM highlighted, is the positive impact that AI should have on the business over time.

For the most part, you scan a sample…

…and a doctor anywhere in the world can look at it, armed with AI analysis.

In places with no doctors available, the AI should still do a good job, certainly better than “no-one” looking at it (i.e., no cancer detection or management plan whatsoever).

That strongly suggests efficiency gains (less cost, more output). You save on supply chain stuff, geographic labour differentials, and increased output, ideally at a quicker speed.

Longer run, we think a compelling and relatively straightforward example of how AI can add to profit over time.

The “other favorable” items; the balance sheet is very strong, and they continue to make synergistic bolt on acquisitions funded through excellent free cash flow generation.

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