Cochlear's big gain falls on deaf ears

From: Sydney Morning Herald, Australia - 18 Feb 2003

By Anthony Hughes
February 19 2003

A 57 per cent rise in interim dividends and a record result by hearing implant maker Cochlear was not enough to win over a skittish market yesterday.

Shares in one of Australia's few unblemished growth stocks slid $1.16 to $34.64 after the company reported a 57 per cent rise in interim net profit to $27.01 million.

Interim dividend is 33c fully franked, up 12c and payable March 19.

Cochlear's global market share rose from 60 to 65 per cent to 65 to 70 per cent thanks largely to a meningitis scare that put one of its biggest competitors, Advanced Bionics Corp, out of the market for six weeks.

The scare also had the effect of slowing the uptake of patients' decision to implant but Cochlear believes it can hold on to the market share it has won.

Doctors and other health professionals were more likely to counsel patients' to use Cochlear implants as a result of the scare, the company's chief executive Jack O'Mahony said. Asked if the company would consider a capital return or spending excess cash to develop another business stream, Mr O'Mahony indicated the company was unlikely to be distracted from increasing the penetration of its hearing devices around the world.

"The market we are operating in is less than 10 per cent penetrated. That opportunity is too great to let go at the moment," Mr O'Mahony said.

Systems sales units grew 22 per cent to 4412, while revenue from the Americas rose 39 per cent to underpin the result. Results in Europe and the Asia Pacific were more mixed, with growth rates of only 7 per cent and 6 per cent respectively.

AMP Henderson Global Investors' senior portfolio manager, Chris Cahill, described it as a "quality result", given Cochlear had also upped its marketing budget during the period to increase awareness of the product.

Cochlear also appears to have held some earnings back, as evidenced by a $5 million deferred receivable on its balance sheet.

Mr Cahill said the price fall was symptomatic of a market that drove down any company that did not produce a positive earnings surprise.

"The stock is very vulnerable because it's a high PE stock [about 32 times forward earnings] and probably the last of the super PE stocks," he said.

Cochlear stood by its prediction that the full-year after tax growth would be in the order of 40 per cent and believed a long-term sales growth rate of 20 per cent a year was sustainable.

Copyright  © 2003. The Sydney Morning Herald.