Checking in on Cochlear
Cochlear Limited (COH) is one of the businesses we have followed with interest over the years. More recently, we have been concerned that competitors like Med-El and Sonova might be closing the technological gap on COH, and threatening its dominant market position.
While competitors have released some impressive products recently, COH has been adamant that its N6 processor will land a heavy punch on them. With the N6 having been available in some parts of the world for a little while now, we have been searching for independent reviews and commentary to corroborate COH’s view. So far, the evidence seems to be quite thin on the ground.
While it’s early days, with audiologists appearing a little lukewarm towards the N6 and a lack of glowing reviews from other sources, the evidence is starting to point in the wrong direction.
It is unlikely that COH is about to meet with financial catastrophe, but our best guess based on the information available is that it has passed the peak of its market share, and further declines are possible.
Tim joined Montgomery in July 2012 and is a senior member of the investment team. Prior to this, Tim was an Executive Director in the corporate advisory division of Gresham Partners, where he worked for 17 years. Tim focuses on quant investing and market-neutral strategies.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
alexander iacovou
:
Hi Roger, I have also been following Cochlear with some interest. Out of curiosity, I tried to find the intrinsic value using the steps in Value-able. Assuming my calculations were correct, the intrinsic value of Cochlear is $23.50.
According to 2013 annual report, the equity per share is $6.27, pays out all of its earnings as dividends, and makes a return on equity of 37% (rounded up to 37.5% for simplicity of using the income multiplier in your book). If my required rate of return is 10% would mean I multiply the equity per share by 3.75, giving $23.50.
Roger Montgomery
:
For starters ALexander, I would suggest using next year’s forecast equity per share and it doesn’t pay 100% of its earnings as a dividend.