Fisher & Paykel: No Major Surprises at Annual General Meeting

We maintain our NZD 22 fair value estimate, or AUD 20.50, and earnings estimates for narrow-moat Fisher & Paykel FPH following a brief market update. Fisher reiterated its fiscal 2024 revenue guidance of NZD 1.7 billion and provided first-half fiscal 2024 guidance of NZD 790 million in group revenue and NZD 95 million to NZD 105 million in net profit after tax. First-half revenue guidance implies 14% growth on the previous corresponding period and a stronger second half. This is in line with typical seasonality given the North American flu season. We leave our fiscal 2024 forecasts of NZD 1.68 billion in group revenue and EBIT of NZD 335 million unchanged.

Our long-term assumptions, including our midcycle 23% EPS growth forecast, are unchanged. We expect this strong growth to be driven by double-digit sales growth and margin expansion from scale efficiencies and an increasing contribution from higher-margin consumables. Management indicated that revenue for the first four months of fiscal 2024 from homecare consumables was stronger, while revenue from hospital hardware was marginally lower. This is likely driven by continued strong sales of its Evora full face mask launched in May 2022, and hospital hardware sales normalizing. The firm is assuming hospital hardware sales will decrease by about NZD 40 million in fiscal 2024.

Management also indicated it is on track to improve gross margins by 200 basis points in constant currency in fiscal 2024, driven by price increases, and lower staff absenteeism and freight rates. This implies a fiscal 2024 gross margin of roughly 60.4%, well below prepandemic levels and its long-term target of 65%. However, we still expect Fisher to return to its long-term 65% gross margin target by fiscal 2028 and think current pressures are largely temporary. Overhead absorption improving as elevated customer stock levels normalize and product mix reverting to higher-margin new application consumables are supportive of margins.