Demant Earnings: Raising Our Valuation on Continued Strong Hearing Performance

We have raised our fair value estimate for narrow-moat Demant 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.

While we anticipate better performance in communications in 2024, this segment is unlikely to return to its peak pandemic sales level in our forecast. Demant acknowledges challenges there and will focus on cost containment; presently this business runs at a loss, and managing gross margin in particular will be challenging.

While Demant struggled in communications, the hearing segment exceeded our expectations. Wholesale in particular impressed; despite growth slowing in the second quarter, for the half year Demant still delivered 23% growth in the hearing aids business, with units and pricing growth at 18% and 4%, respectively. Demant gained market share following its new premium portfolio launch, outgrowing market unit volume growth by 13 percentage points. Performance was strong across the globe, including in China, where revenue was up materially from the last year’s pandemic-restrictions-affected levels. Retail also grew well, up 8% organically, with particular strength in Europe and Asia (thanks to the ShengWang acquisition). In this business, however, the company’s decision to exit some managed-care relationships is hurting its positioning in the United States, where managed care is starting to gain momentum.

The sale of the implant business is still on target to be completed by the end of 2023. Disposition can’t come fast enough, as this business is bleeding cash rapidly.