New Zealand Professional Investment Services Firm

Forsyth Barr

We are proud to be a New Zealand owned firm, with 21 offices throughout the country and over 300 employees. We assist personal, institutional and corporate clients providing a full range of investment services.

Forsyth Barr is a foundation New Zealand Exchange firm (NZX) and accredited market participant. We have been confirmed by the Financial Markets Authority as a Qualifying Financial Entity (QFE).

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New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

Fisher & Paykel Healthcare Corp / Equity Bottom-Up

<h2>F&amp;P Healthcare</h2>
COVID-19 and Currency Boost
 UNDERPERFORM
F&amp;P Healthcare's (FPH) FY20 upgrade cycle continues, with a further ~5% uplift to NPAT guidance as it benefits from (1) a lower NZ dollar and (2) a spike in demand for Hospital hardware. We expect further tailwinds for FY21 as a result of a strong lift in demand for its Hospital products due to the COVID-19 pandemic, albeit assume this is predominantly a one-off uplift. There is no doubt the company is well positioned, with products in high demand (and vital for critical patients) and a strong balance sheet. However, FPH was already one of the most expensive global medical device companies (growth-adjusted and absolute) leading into COVID-19 and has outperformed to date in 2020. While it is difficult to foresee a catalyst for a de-rating, particularly given near-term earnings momentum, we see better value for risk elsewhere.
<table class="table table-striped"><colgroup><col> <col> <col> <col> <col> <col> <col span="2"> <col span="2"> <col> <col></colgroup>
<tbody>
<tr>
<td style="width: 48pt;">NZX Code</td>
<td style="width: 48pt;">FPH</td>
<td style="width: 48pt;">Financials:Mar/</td>
<td style="width: 40.2pt;">19A</td>
<td style="width: 42.6pt;">20E</td>
<td style="width: 43.2pt;">21E</td>
<td style="width: 48pt;">22E</td>
<td style="width: 48pt;">Valuation (x)</td>
<td style="width: 42.6pt;">19A</td>
<td style="width: 42.6pt;">20E</td>
<td style="width: 48pt;">21E</td>
<td style="width: 42.6pt;">22E</td>
</tr>
<tr>
<td style="width: 48pt;">Share price</td>
<td style="width: 48pt;">NZ$24.90</td>
<td style="width: 48pt;">NPAT* (NZ$m)</td>
<td style="text-align: left; width: 40.2pt;">209.2&nbsp;</td>
<td style="text-align: left; width: 42.6pt;">278.5</td>
<td style="text-align: left; width: 43.2pt;">324.7&nbsp;</td>
<td style="text-align: left; width: 48pt;">355.5&nbsp;</td>
<td style="width: 48pt;">EV/EBITDA</td>
<td style="text-align: left; width: 42.6pt;">43.2&nbsp;</td>
<td style="text-align: left; width: 42.6pt;">33.9</td>
<td style="text-align: left; width: 48pt;">28.7&nbsp;</td>
<td style="text-align: left; width: 42.6pt;">26.2&nbsp;</td>
</tr>
<tr>
<td style="width: 48pt;">Target price</td>
<td style="width: 48pt;">NZ$18.50</td>
<td style="width: 48pt;">EPS* (NZc)</td>
<td style="text-align: left; width: 40.2pt;">36.5&nbsp;</td>
<td style="text-align: left; width: 42.6pt;">48.4&nbsp;</td>
<td style="text-align: left; width: 43.2pt;">56.2&nbsp;</td>
<td style="text-align: left; width: 48pt;">61.2&nbsp;</td>
<td style="width: 48pt;">EV/EBIT</td>
<td style="text-align: left; width: 42.6pt;">48.6&nbsp;</td>
<td style="text-align: left; width: 42.6pt;">38.7&nbsp;</td>
<td style="text-align: left; width: 48pt;">32.4&nbsp;</td>
<td style="text-align: left; width: 42.6pt;">29.5&nbsp;</td>
</tr>
<tr>
<td style="width: 48pt;">Risk rating</td>
<td style="width: 48pt;">Medium</td>
<td style="width: 48pt;">EPS growth* (%)</td>
<td style="text-align: left; width: 40.2pt;">9.5</td>
<td style="text-align: left; width: 42.6pt;">32.6</td>
<td style="text-align: left; width: 43.2pt;">16</td>
<td style="text-align: left; width: 48pt;">8.9&nbsp;</td>
<td style="width: 48pt;">PE</td>
<td style="text-align: left; width: 42.6pt;">n/a</td>
<td style="text-align: left; width: 42.6pt;">n/a</td>
<td style="text-align: left; width: 48pt;">44.3&nbsp;</td>
<td style="text-align: left; width: 42.6pt;">40.7&nbsp;</td>
</tr>
<tr>
<td style="width: 48pt;">Issued shares</td>
<td style="width: 48pt;">572.8m</td>
<td style="width: 48pt;">DPS (NZc)</td>
<td style="text-align: left; width: 40.2pt;">23.3&nbsp;</td>
<td style="text-align: left; width: 42.6pt;">31.0&nbsp;</td>
<td style="text-align: left; width: 43.2pt;">36.0&nbsp;</td>
<td style="text-align: left; width: 48pt;">39.5&nbsp;</td>
<td style="width: 48pt;">Price/NTA</td>
<td style="text-align: left; width: 42.6pt;">n/a</td>
<td style="text-align: left; width: 42.6pt;">n/a</td>
<td style="text-align: left; width: 48pt;">n/a</td>
<td style="text-align: left; width: 42.6pt;">n/a</td>
</tr>
<tr>
<td style="width: 48pt;">Market cap</td>
<td style="width: 48pt;">NZ$14,262m</td>
<td style="width: 48pt;">Imputation (%)</td>
<td style="text-align: left; width: 40.2pt;">100</td>
<td style="text-align: left; width: 42.6pt;">100</td>
<td style="text-align: left; width: 43.2pt;">100</td>
<td style="text-align: left; width: 48pt;">100</td>
<td style="width: 48pt;">Cash div yld (%)</td>
<td style="text-align: left; width: 42.6pt;">0.9</td>
<td style="text-align: left; width: 42.6pt;">1.2</td>
<td style="text-align: left; width: 48pt;">1.4&nbsp;</td>
<td style="text-align: left; width: 42.6pt;">1.6&nbsp;</td>
</tr>
<tr>
<td style="width: 48pt;">Avg daily turnover</td>
<td style="width: 48pt;">624.9k (NZ12,043k)</td>
<td colspan="3" style="width: 130.8pt;">*Based on normalised profits</td>
<td style="width: 43.2pt;"></td>
<td style="width: 48pt;"></td>
<td style="width: 48pt;">Gross div yld (%)</td>
<td style="text-align: left; width: 42.6pt;">1.3</td>
<td style="text-align: left; width: 42.6pt;">1.7</td>
<td style="text-align: left; width: 48pt;">2.0&nbsp;</td>
<td style="text-align: left; width: 42.6pt;">2.2&nbsp;</td>
</tr>
</tbody>
</table>
FY20 upgrade cycle continues
FPH&nbsp;upgraded FY20 guidance&nbsp;by ~+2% to revenue (to NZ$1.24bn) and ~+5% to&nbsp;NPAT&nbsp;(revised range NZ$275–280m) driven by (1) strong demand for its Hospital products globally, particularly hardware, (2) FX tailwinds, helped by more exposure to spot rates than planned (despite high levels of hedging) given the sharp lift in China sales, (3)&nbsp;Homecare&nbsp;new masks continuing to sell well. We understand the mix of the upgrade is 40/40/20 between those three drivers, respectively.
Where to beyond FY20?
Forecasting the pace or extent of the global spread of&nbsp;COVID-19 is fraught with difficulty. The current data available suggests that of those cases requiring hospitalisation ~25% are 'critical', which is of most relevance to&nbsp;FPH. Within this cohort an estimated ~94% receive either invasive ventilation (IV) or high flow nasal&nbsp;cannula&nbsp;(HFNC) oxygen therapy within the&nbsp;ICU. Given&nbsp;FPH's&nbsp;strong market positioning in both of these (est. global market share ~75%) it is a key beneficiary of any continued lift in this patient cohort.
There is no doubt&nbsp;COVID-19 will provide a material tailwind for FY21. At this stage we have lifted our&nbsp;EBITDA&nbsp;forecast +6%, acknowledging a high margin of error. Our medium-term changes are small&nbsp;—&nbsp;we expect to see some incremental benefit from hardware deployment, although don't expect to see a step-change in adoption rates.
Supply chain and capacity&nbsp;— well positioned currently with ~30% additional capacity
At this stage&nbsp;FPH&nbsp;is not constrained in terms of raw material access, getting products to market and producing product. The company typically ensures ~2yrs of capacity at any point in time across its manufacturing facilities, which leaves ~30% additional capacity currently. This suggests a maximum possible uplift to patient set-ups of c.+30% or c.3m across&nbsp;HFNC&nbsp;oxygen therapy and IV. Our prior forecasts already assumed a lift in&nbsp;HFNC/IV set-ups of ~1m, leaving incremental capacity of ~2m for&nbsp;COVID-19 patients.&nbsp;FPH&nbsp;has a number of options to scale up capacity further, however, in&nbsp;practice&nbsp;this will take time (we expect many months).&nbsp;Another key area of capacity constraint&nbsp;is&nbsp;ICU&nbsp;beds in hospitals globally.
Chelsea Leadbetter CFA chelsea.leadbetter@forsythbarr.co.nz +64 4 495 5262

F&amp;P Healthcare
COVID-19 and Currency Boost
 UNDERPERFORM
F&amp;P Healthcare's (FPH) FY20 upgrade cycle continues, with a further ~5% uplift to NPAT guidance as it benefits from (1) a lower NZ dollar and (2) a spike in demand for Hospital hardware. We expect further tailwinds for FY21 as a result of a strong lift in demand for its Hospital products due to the COVID-19 pandemic, albeit assume this is predominantly a one-off uplift. There is no doubt the company is well positioned, with products in high demand (and vital for critical patients) and a strong balance sheet. However, FPH was already one of the most expensive global medical device companies (growth-adjusted and absolute) leading into COVID-19 and has outperformed to date in 2020. While it is difficult to foresee a catalyst for a de-rating, particularly given near-term earnings momentum, we see better value for risk elsewhere.
         


NZX Code
FPH
Financials:Mar/
19A
20E
21E
22E
Valuation (x)
19A
20E
21E
22E


Share price
NZ$24.90
NPAT* (NZ$m)
209.2&nbsp;
278.5
324.7&nbsp;
355.5&nbsp;
EV/EBITDA
43.2&nbsp;
33.9
28.7&nbsp;
26.2&nbsp;


Target price
NZ$18.50
EPS* (NZc)
36.5&nbsp;
48.4&nbsp;
56.2&nbsp;
61.2&nbsp;
EV/EBIT
48.6&nbsp;
38.7&nbsp;
32.4&nbsp;
29.5&nbsp;


Risk rating
Medium
EPS growth* (%)
9.5
32.6
16
8.9&nbsp;
PE
n/a
n/a
44.3&nbsp;
40.7&nbsp;


Issued shares
572.8m
DPS (NZc)
23.3&nbsp;
31.0&nbsp;
36.0&nbsp;
39.5&nbsp;
Price/NTA
n/a
n/a
n/a
n/a


Market cap
NZ$14,262m
Imputation (%)
100
100
100
100
Cash div yld (%)
0.9
1.2
1.4&nbsp;
1.6&nbsp;


Avg daily turnover
624.9k (NZ12,043k)
*Based on normalised profits


Gross div yld (%)
1.3
1.7
2.0&nbsp;
2.2&nbsp;



FY20 upgrade cycle continues
FPH&nbsp;upgraded FY20 guidance&nbsp;by ~+2% to revenue (to NZ$1.24bn) and ~+5% to&nbsp;NPAT&nbsp;(revised range NZ$275–280m) driven by (1) strong demand for its Hospital products globally, particularly hardware, (2) FX tailwinds, helped by more exposure to spot rates than planned (despite high levels of hedging) given the sharp lift in China sales, (3)&nbsp;Homecare&nbsp;new masks continuing to sell well. We understand the mix of the upgrade is 40/40/20 between those three drivers, respectively.
Where to beyond FY20?
Forecasting the pace or extent of the global spread of&nbsp;COVID-19 is fraught with difficulty. The current data available suggests that of those cases requiring hospitalisation ~25% are 'critical', which is of most relevance to&nbsp;FPH. Within this cohort an estimated ~94% receive either invasive ventilation (IV) or high flow nasal&nbsp;cannula&nbsp;(HFNC) oxygen therapy within the&nbsp;ICU. Given&nbsp;FPH's&nbsp;strong market positioning in both of these (est. global market share ~75%) it is a key beneficiary of any continued lift in this patient cohort.
There is no doubt&nbsp;COVID-19 will provide a material tailwind for FY21. At this stage we have lifted our&nbsp;EBITDA&nbsp;forecast +6%, acknowledging a high margin of error. Our medium-term changes are small&nbsp;—&nbsp;we expect to see some incremental benefit from hardware deployment, although don't expect to see a step-change in adoption rates.
Supply chain and capacity&nbsp;— well positioned currently with ~30% additional capacity
At this stage&nbsp;FPH&nbsp;is not constrained in terms of raw material access, getting products to market and producing product. The company typically ensures ~2yrs of capacity at any point in time across its manufacturing facilities, which leaves ~30% additional capacity currently. This suggests a maximum possible uplift to patient set-ups of c.+30% or c.3m across&nbsp;HFNC&nbsp;oxygen therapy and IV. Our prior forecasts already assumed a lift in&nbsp;HFNC/IV set-ups of ~1m, leaving incremental capacity of ~2m for&nbsp;COVID-19 patients.&nbsp;FPH&nbsp;has a number of options to scale up capacity further, however, in&nbsp;practice&nbsp;this will take time (we expect many months).&nbsp;Another key area of capacity constraint&nbsp;is&nbsp;ICU&nbsp;beds in hospitals globally.
Chelsea Leadbetter CFA chelsea.leadbetter@forsythbarr.co.nz +64 4 495 5262

F&P Healthcare: COVID-19 and Currency Boost