Stock Takes: What now for F&P Healthcare after earnings dip?

How long can F&P Heathcare's earnings remain elevated? Photo / Supplied

The sharemarket gave Fisher and Paykel Healthcare a big tick for delivering a stronger-than-expected first half result, but what's in store for the respiratory products maker now that Covid-19 looks to be in retreat?

The company - New Zealand's biggest by market cap - posted a 2 per cent decline in first-half profit to $222 million, driven by an equally slight drop in sales from its hospital group.

Earnings nevertheless remained elevated due to Covid-19-related demand.

For the six months to September, total operating revenue was $900m - down 1 per cent from the same period in the previous financial year or up 2 per cent in constant currency terms.

The market consensus for the company's revenue for the six months to September was $866m, with a net profit of $200m, down from $910.2m and $225.5m, respectively, in the same year-ago period.

F&P Healthcare lifted its interim dividend by six per cent to 17c.

The company was circumspect to slightly downbeat about its prospects for the remainder of the financial year.

"For the second half, we expect our hospital hardware sales will continue to be impacted by Covid-19-related hospital admissions," it said.

"However, as we said in our August trading update, many countries have already boosted their hospital treatment capacity, so we do not expect hospital hardware revenue to continue at an elevated level for the rest of the year."

In its hospital product group, consumables volume was likely to be impacted by a number of different factors.

Those included the ongoing Covid-19 hospitalisations around the world, the severity of the flu season during the Northern Hemisphere winter, and the ability of hospitals to return to their pre-Covid rates for surgeries.

In a conference call, chief executive and managing director Lewis Gradon said the second half of the previous financial year corresponded to the peak Covid-19 hospitalisations in North America and much of Europe.

He said hospital hardware sales would continue to respond to any hospital surges through the second half.

"However, we think the dynamics now are different," he said.

"Many countries have now already boosted their hospital treatment capacity so we don't expect hospital hardware revenue to remain at the same elevated levels for the rest of the year," he said.

"There continues to be a lot of uncertainties with this pandemic, especially heading into winter in the Northern Hemisphere.

"We are currently seeing some countries return to different forms of lockdown.

"It could be a long journey yet with Covid-19 to get to a point where business and life are more predictable," he said.

The result was ahead of market expectations and the share market reacted favourably to it, shooting up to $34.47 before settling back to $33.78, up $1.58 or 4.91 per cent.

"The market has initially reacted to it being stronger than expectations, although much of this came from one-off equipment sales rather than more repeatable consumables sales," Salt Funds managing director Matt Goodson said.

"This means the repeatability of the result will be the key question for the second half," he said.

Jarden, in a research note, said F&P Healthcare's result was a lot stronger than it had expected.

"The key variances to our forecast were stronger hardware sales over the last two months, with consumables and homecare revenues in line.

"Gross margin was also stronger with elevated freight costs still impacting but not to the extent of the previous corresponding period or our expectation.

"Thematically, it was in line with our expectation, with Delta providing a stronger-for-longer period and shallowing the future normalisation path, which we expect the company to enter over the next 12 months before returning to growth in second half of 2023," Jarden said.

Steel & Tube's lift

Jarden has lifted its earnings forecasts for Steel and Tube Holdings after the company's recent update.

Steel and Tube has provided Ebit guidance of at least $17m for the first half of this financial year compared with $8.9m in the previous corresponding period, reflecting a continuation of the positive momentum seen in the second half of 2021.

The company cited positive market conditions driving volume growth, while also highlighting improved pricing discipline and cost control.

Steel & Tube chief executive Mark Malpass. Photo / Supplied

Earlier in the month, Steel and Tube reported a 14 per cent increase in revenue for the first four months of the year, a period that included a substantial slowdown in revenue during the level 4 Covid lockdown.

Jarden noted Steel and Tube's strong order book and the company's expectations that market conditions would remain supportive over the medium term.

"We lift our Ebit forecasts for full-year 2022, 2023, and 2024 by 69 per cent, 40 per cent and 16 per cent, respectively."

"We increase our full year 2022 EBIT forecast to $31.8m on a strong trading update and supportive outlook but recognising there are seven fewer trading days in the second half," Jarden said.

Fyfe sells MHI stock

Michael Hill International (MHI) chair Rob Fyfe has lightened his holding the dual-listed jewellery retail chain.

In a notice to the NZX, MHI said Fyfe had sold 400,000 shares for $508,000.

He still holds 2.9m shares in the company.

Fyfe served as chief executive of Air New Zealand between 2005 and 2012.

He has been a director of MHI since January 2014 and was appointed chair in June, 2021.

Forsyth Barr's awards

Forsyth Barr received three awards at the FinanceAsia 2021 Achievement Awards, including being selected as Best Investment Bank – New Zealand.

The annual achievement awards recognise excellence across Asia, Australia and New Zealand financial markets.

An advisory board of external experts judged more than 600 submissions in three key categories – House Awards, Deal Awards and Regional Deal Award.

In the Deal Awards, the acquisition of Tilt Renewables by Mercury and Powering Australian Renewables (PowAR) won the award for Best New Zealand Deal and Best Australian M&A Deal.

Forsyth Barr was joint financial adviser to Mercury.