Cochlear [ASX:COH] is one of Australia’s biggest biotech companies. They are specifically involved in the design and manufacturing of products to help those with hearing difficulties. And they’ve been helping the hearing impaired since the 60s.
Today Cochlear revealed their half year analyst presentation and they didn’t disappoint. Net profits were up 32% to $94 million. Interim dividend increase 22% to 110 cents per share. And FY16 guidance is expected in the range of $180–$190 million.
It was definitely a great first half for Cochlear, powered by product launches. It seems every time Cochlear launched a new product, demand would grow. Unit growth has already increased by more than a quarter. And even more product innovations are on the way.
Investors were ecstatic about the news. As soon as net profits were release, Cochlear’s share price spiked. Shares jumped almost 10% to break $100 per share.
Source: Yahoo finance
The jump now eliminates all loses and has bumped Cochlear up 4% for the year. The three digit share price has also given Cochlear an all-time high. Chris Smith, Cochlear CEO, said the positive momentum from 2015 continued into 2016.
Smith talked in more depth about Cochlear’s success by emphasising the strong market acceptance of product launches. ‘Looking forward, we have an exciting pipeline of products to be released over the next 18 months across all categories of our business,’ said Smith on Thursday.
Cochlear profits aren’t all they seem to be
Cochlear has definitely performed exceptionally well. They’ve been able to increase profits in hard economic times. Their products are definitely innovative. The company itself has won multiple innovative awards. But it wasn’t all down to their products.
The Australian dollar was a lot more influential than it should have been. Since Cochlear operates globally revenues can be denominated in many different foreign currencies. This means when the AUD is low, revenues from foreign currencies will be boosted when converted back into AUD. This is because foreign currency is able to buy more AUD. Thus an increase overall earnings is created.
In FY15 H1 gained $0.6 million through foreign exchange transactions. In FY16 H1 Cochlear gained on foreign transactions again, but this time it was $5.8 million. This means millions that have made up Cochlear’s earnings realistically shouldn’t be there.
Why? Gaining on foreign transactions for Cochlear is not a reliable item. Cochlear might gain or lose on foreign transactions. But to accept that they made high gains on these transactions can skew our valuation of the business. And since it’s not consistent, it should be disregarded.
Junior Analyst, Money Morning
PS: Biotech firms have definitely benefited off the Governments innovative scheme. But Cochlear may not be a buy right now. When investing in equities we want to be sure we buy value. And value means a stock that will create long term returns at a cheap price. I’m not going to lie; it’s definitely hard trying to find these stocks. Market noise is everywhere and analyst can sometimes have confused opinions.
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