Sonic Slightly Increases Fiscal 2020 Guidance, Maintain AUD 28 Fair Value Estimate

At today’s AGM, narrow-moat Sonic Healthcare maintained its constant currency EBITDA guidance of 6% to 8% growth in fiscal 2020, behind our forecast for 10% gains. Our forecast comprises 5% organic growth plus a 5% boost from the acquisition of Aurora Diagnostics in January 2019 which only contributed for five months in the previous corresponding period. We expect organic growth to be ahead of what is implied by the company guidance and include an expanded EBITDA margin of 17.7%, in line with the second half of fiscal 2019, from 17.4% for the full fiscal 2019 base year. We also expect a 2.6% currency tailwind in reported EBITDA given Sonic’s broad geographic exposure, with no changes to our key exchange rate assumptions of AUD/USD of 0.68 and AUD/EUR of 0.61. Longer term, our estimate of sustainable EBITDA growth is unchanged at between 6% and 7% per year. Favourable pricing on a recent debt issuance will reduce interest cost, resulting in our forecast core EPS for fiscal 2020 growing by 5.4% from 4.5% previously, but this has no impact on our five-year EPS growth of 8.8% or AUD 28.00 fair value estimate. The shares screen as fairly valued.