HOLD ResMed

The In­tel­li­gent In­vestor Gra­ham Wit­comb

Money Magazine Australia - - IN BRIEF -

Tech­nolo­gies tend to get cheaper over time, and that goes for as­sisted breath­ing tech­nolo­gies too. We’ve lost track of how many ResMed results have in­cluded the line “gross mar­gin was slightly lower than the prior year quar­ter mainly due to de­clines in av­er­age sell­ing prices, which were par­tially off­set by man­u­fac­tur­ing and pro­cure­ment ef­fi­cien­cies”. The com­pany’s gross mar­gin fell slightly from 58.4% to 58.3% in the three months to Septem­ber, com­pared with the previous year.

This tells us that ResMed is pretty good at cut­ting op­er­at­ing costs and tak­ing ad­van­tage of op­er­at­ing lever­age, with net profit mar­gin slightly bet­ter to­day than it was 10 years ago, de­spite gross mar­gin fall­ing from 62% to 58%.

Rev­enue rose 13% to $US588 mil­lion ($810 mil­lion) in the Septem­ber quar­ter, while net profit in­creased 23% to $US106 mil­lion due to ad­min­is­tra­tive and re­search ex­pens- es be­ing rel­a­tively un­changed from last year.

This was a strong re­sult, par­tic­u­larly be­cause the growth was across all prod­uct cat­e­gories and in all ge­o­graphic mar­kets. Sales were up 16% in Europe and Asia, com­pared with 10% growth in North and Latin Amer­ica.

In this quar­ter, ResMed formed a joint ven­ture with data an­a­lyt­ics provider Ver­ily and pur­chased Health­care­first for $US126 mil­lion. This part­ner­ship should sup­port the com­pany’s strat­egy of of­fer­ing the best soft­ware for pa­tients and providers, rather than driv­ing sales solely by hard­ware im­prove­ments.

ResMed trades on a for­ward price-earn­ings ra­tio of 28 based on con­sen­sus es­ti­mates for 2019 earn­ings. We’re happy with the rev­enue and earn­ings growth this quar­ter and glad to see cost-cut­ting mea­sures more than off­set­ting fall­ing av­er­age sell­ing prices. Gra­ham Wit­comb is an an­a­lyst at In­tel­li­gent In­vestor, owned by In­vestSMART Group.

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