Company Reports

We maintain our fair value estimate for narrow-moat Demant following the release of end-2023 results. The shares are modestly overvalued at their current level.

We have raised our fair value estimate for narrow-moat Demant to DKK 280 per share from DKK 240 following the release of first-half results. The company continues to see healthy performance in the hearing business, wholesale as well as retail, which has more than offset deteriorating performance in the communications segment. The shares appear fairly valued at their current level.

Demant benefits from favourable trends, including an ageing population, increasing noise pollution, fairly low penetration rates in the developed world, and virtually untapped patient populations in emerging markets such as China where Demant acquired the retail chain ShengWang in June 2022. Demant's broad product offerings should allow the company to capitalize on these trends, while its strong brand and superior technological know-how should yield market share gains. After selling its implant business, Demant is in a better position to focus its efforts and maintain its top-tier positioning in the market.

We maintain our DKK 240 fair value estimate for narrow-moat Demant with the finalization of first-quarter results. It released preliminary revenue numbers in April when it upgraded its fiscal-year guidance with group organic growth reaching 14% year over year. We currently view shares as modestly overvalued.

Narrow-moat Demant announced that the UK Competition and Markets Authority's provisional finding (prior to the final report in early June) is that the divestment of Oticon Medical to Cochlear Ltd. could create a "substantial lessening of competition" in the region. The implants divestiture was expected to close in the second quarter of 2023, but it is now doubtful given the CMA's preliminary findings. Demant and Cochlear are also awaiting decisions from various other entities regarding the effects on competition and foreign direct investments.

We are maintaining our DKK 240 fair value estimate for narrow-moat Demant as it raises fiscal-year 2023 guidance on the back of a strong first quarter. With first-quarter revenue up 14% organically, fiscal-year revenue guidance is raised to 6%-10% and EBIT raised by DKK 200 million to DKK 3.8 billion-DKK 4.2 billion. Hearing healthcare grew 16% organically year over year with another 4% in growth supported by the acquisition of Sheng Wang, showing stronger continuing COVID-19-recovery than anticipated. We currently view shares as fairly valued.

Demant benefits from favourable trends, including an ageing population, increasing noise pollution, fairly low penetration rates in the developed world, and virtually untapped patient populations in emerging markets such as China where Demant acquired the retail chain ShengWang in June 2022. Demant's broad product offerings should allow the company to capitalize on these trends, while its strong brand and superior technological know-how should yield market share gains. After selling its implant business, Demant is in a better position to focus its efforts and maintain its top-tier positioning in the market.

We anticipate a moderate decrease to our fair value estimate for narrow-moat Demant, given the weakness in the hearing healthcare market that prevailed through the end of 2022 on top of the lackluster gaming market. Organic revenue growth for the full year was 4%, heavily supported by the diagnostics and hearing aid segments, which saw organic growth of 13% and 9%, respectively. The communications segment saw a negative organic impact of 13% year over year.

Further weakness in the performance of the hearing care and communications segments in the third quarter have led narrow-moat Demant to pull down its already-reduced full-year projections. Development in the communication segment was foreseeable with a massive demand spike in the pandemic years leading to higher inventories in the sales channel and pulled forward demand, the effect of which is now further exacerbated by softening consumer spending. Weakness persistence in the hearing care business is more surprising, with Demant's struggles in the North American business proving to be less transitory. We will be modestly lowering our fair value estimate as we were overly positive on the communications segment sales trajectory in the next few years. However, shares are likely to remain in undervalued territory.

We are maintaining our fair value estimate of DKK 254 for narrow-moat Demant following the release of first-half results. Management downgraded organic revenue growth for fiscal 2022 from 5%-9% to 4%-6% as a result of lower-than-expected growth for hearing care in the U.S. and continued COVID-19 impacts in the Asia and Pacific regions in the first half. We view shares as fairly valued.

Demant benefits from favourable trends, including an ageing population, increasing noise pollution, fairly low penetration rates in the developed world, and virtually untapped patient populations in emerging markets. Its broad product offerings should allow the company to capitalize on these trends, while its strong brand and superior technological know-how should yield market share gains. After selling its implant business, Demant is in a better position to focus its efforts and maintain its top-tier positioning in the market.

We are maintaining our fair value estimate of DKK 238 for narrow-moat Demant following the announcement of the firm's first-quarter interim statement. Total revenue increased organically by 6% to DKK 4.6 billion year over year as Demant regained share and unit sales in government channels. We currently view shares as overvalued.

Demant's announcement of the sale of its medical segment to Cochlear ends the firm's unsuccessful decade-plus long excursion into the implants industry and further underscores the challenge of competing with wide-moat Cochlear in this space. We maintain our fair value estimate for the narrow-moat Demant as this segment has long been an investment sinkhole and unlikely to ever become a meaningful contributor.

We anticipate a moderate increase to our fair value estimate of DKK 238 for narrow-moat Demant as we update our model following fiscal 2021 results. Demant saw strong revenue growth of 27% to DKK 18.4 billion versus the easy overall comparables of fiscal 2020 (DKK 14.5 billion) as the global pandemic recovery continued in the second half of the year. We currently view shares as modestly overvalued.

We anticipate moderately increasing our fair value estimate for narrow-moat Demant following management’s interim statement. Management increased its fiscal 2021 EBIT outlook to DKK 3,300 million-3,500 million from DKK 3,150 million-3,450 million on the strength of the hearing business. We currently view the shares as modestly overvalued.

We anticipate a moderate increase to our fair value estimate of DKK 238 for narrow-moat Demant. Management has updated fiscal 2021 revenue guidance to 26%-30% organic growth from 24%-28% and an additional increase of DKK 150 million in EBIT following a strong second quarter and the conclusion of the first half of 2021. We currently view shares as overvalued even including the anticipated increase in our fair value estimate.

Since 2017, when the U.S. Congress allowed for over the counter (OTC) hearing aid sales, there has been minimal progress in the creation of regulations to enable hearing-impaired Americans to access these low-cost options. On July 9, President Biden prompted the U.S. Department of Health and Human Services via executive order to create a proposal of necessary rules for OTC hearing aid sales within 120 days. This prompted shares of all hearing aid manufacturers to dip as investors apparently fear the prospects of increasing competition and pricing wars. Our take on it is more sanguine--while the new directive does offer an easier pathway for OTC devices to compete, its impact will likely be confined to lower-end devices and largely absorbed by the manufacturers without material damage. We maintain our moat ratings and valuations for all hearing aid companies under our coverage.

We are increasing our fair value estimate for narrow-moat Demant from DKK 189 to DKK 238 per share. The interim report showed fiscal 2021 off to a good start, commanding double-digit growth in the first few months, and we are also modestly boosting our 2022 forecast. Even with our fair value increase, we currently view shares as overvalued.

Demant benefits from favourable trends, including an ageing population, increasing noise pollution, fairly low penetration rates in the developed world, and virtually untapped patient populations in emerging markets. Its broad product offerings should allow the company to capitalise on these trends, while its strong brand and superior technological know-how should yield market share gains.

We are currently maintaining our fair value estimate of DKK 189 for narrow-moat Demant following the release of management’s interim statement, which highlighted continued recovery in the hearing industry as more high-risk individuals receive vaccinations. Demant estimated 6% global hearing aid growth over 2020’s fourth quarter, and management has slightly increased its 2021 organic growth forecasts to 24%-28% from 23%-27%. We currently view shares as overvalued.