COH Earnings in Line, Investment Thesis Intact, FVE Unchanged at AUD 135

Wide-moat Cochlear delivered fiscal 2019 earnings in line with our expectations and we retain our AUD 135 fair value estimate. Despite disappointing sales growth of 4.6%, with overall cochlear implant units declining 3.3%, the company has a flexible cost base and curbed expenses in order to deliver adjusted ESP growth of 8.3%. The soft sales growth is a reflection of the temporary loss of market share in the U.S., as competitors launched MRI compatible implants ahead of Cochlear, and a decline in the emerging market business. We expect a bounce back in the developed market business, which contributes 80% of revenues, in fiscal 2020 as the newest Cochlear product was launched at the tail end of fiscal 2019.