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Cochlear share price jumps on higher dividend and outlook

Brendon Lau
beat the share market

The Cochlear Limited (ASX: COH) share price surged higher after the hearing implant company lifted its dividend and forecasted further profit growth in FY20 in its full year profit announcement released this morning.

The Cochlear share price jumped 3.1% to $207.85 in early trade when the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index is struggling at around breakeven.

Other high-profile medical stocks are also trading higher although they are lagging well behind Cochlear at the time of writing. The RESMED/IDR UNRESTR (ASX: RMD) share price increased 0.7% to $19.51 and the CSL Limited (ASX: CSL) share price added 1% to $228.93.

More growth expected in FY20

Cochlear reported a 7% increase in FY19 sales to $1.45 billion and a similar increase in underlying net profit to $265.9 million.

Cochlear is promising stronger growth in FY20 with management tipping a 9% to 13% increase in net profit to between $290 million and $300 million, and has upped its final dividend by 9% to $1.75 a share. This takes the full year distribution to $3.30 per share, or 10% higher than the previous year.

The weakening Australian dollar is helping its cause, but the exciting growth driver was the 20% increase in services revenue as Cochlear implant sales only managed to inch up 2% in the period.

Emerging market issues

Implant sales were impacted by economic strife in emerging markets. Argentina fell into a recession while political tensions triggered a crash in the Turkish lira. There were also 700 fewer Chinese Central Government tender units than last year.

The launch of a competitor product further dented sales in the US and Germany, although Cochlear said sales regained lost ground with the launch of its Nucleus Profile Plus Series cochlear implant in Europe in mid-May and the US in late June.

What’s also pleasing is the 15% increase in operating cash flow to $296 million, which prompted the board to lift its dividend by more than profit growth.

“We have a strong balance sheet and generate operating cash flows sufficient to fund investing activities, capital expenditure and acquisitions whilst increasing dividends to shareholders and maintaining conservative gearing levels,” said Cochlear’s chief executive Dig Howitt.

“We expect strong growth in cochlear implant units in FY20, driven by a number of new products launched late in FY19 and the continued investment in market awareness and access activities.”

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BrenLau has no position in any of the stocks mentioned. Connect with him on Twitter @brenlau.

The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Cochlear Ltd. and CSL Ltd. The Motley Fool Australia has recommended Cochlear Ltd. and ResMed Inc. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2019