Quick Recovery As Cochlear Benefits From Rescheduled Surgeries in Developed Markets

We keep our AUD 138 fair value for wide-moat Cochlear following a 4% fall in interim 2021 underlying NPAT to AUD 125 million. Sales momentum improved across the half as surgeries recovered faster than we anticipated following COVID-19 shutdowns. We lift our fiscal 2021 underlying NPAT by 10% to AUD 238 million, in the upper half of the AUD 225 million–AUD 245 million guidance range. The implied weaker second half is due to a slowdown in surgeries in early 2021, higher costs to accelerate growth projects, and weaker USD. Despite the quick recovery, our five-year EPS CAGR forecast reduces to 17% from 18% reflecting an updated USD/AUD exchange rate of 0.78 from 0.72. Shares continue to screen as overvalued as we retain our view that the developed market children segment is close to fully saturated.