Time for ResSleep?
Resmed is a company that manufactures machines and masks for sufferers of sleep apnea. At Montgomery, we believe that Resmed is a quality business with strong fundamentals. Despite both funds being shareholders, none of our team has trialled the products first hand. Until now.
For those that haven’t heard of sleep apnea, it is a condition where the airways collapse during sleep, starving the brain of oxygen. While the condition is more common in men who are overweight and who smoke, I was interested to see if my sleep could be improved, and so was referred by my GP to visit ResSleep for testing.
ResSleep acquired ResMed’s Australian retail business in 2009. The clinics provide patient care and sleep apnea solutions in Australia, but only with Resmed products. When I asked where to find the competitor’s products, the attendants explained that while I could find them in rival clinics, the ResSleep network made Resmed the dominant domestic player.
During my initial consultation, the attendant provided a prolonged explanation of sleep apnea. Resmed estimates that 80 per cent of sleep apnea sufferers have been undiagnosed. As awareness of the condition increases, so too does Resmed’s potential market.
Being curious about the company, I peppered the attendants with many questions. Most of the responses revolved around the high level of after-care service that the clinic provides, which helped me understand how Resmed achieves superior compliance in the market. Compliance is important for both manufacturers and distributors, as a considerable proportion of revenue is generated from existing customers. An effective after-care network is therefore critical to achieving long-run returns.
Sleep apnea is diagnosed by attaching a device to your body during sleep – this can be worn at the clinic or at home. I opted to take the sleep test at home, and found the device to be quite burdensome. Not only was it an intensive process attaching all the nodes to my body, it resulted in a rather uncomfortable sleep. While the device was not affiliated with Resmed, I did think it reflected poorly on the company, and believe a more compact version would be better received.
The test itself was very comprehensive, monitoring my airflow, oxygen levels, heartbeat, snoring intensity, and position of sleep. The rigor of the testing process was another sign of the professionalism of Resmed’s network. For instance, the data gets sent to Queensland for analysis to prevent bias, and is then cross-checked by experts in NSW.
The results indicated that I had mild sleep apnea, which means that a machine would be helpful but was not essential to improve my sleep. If I decide to act on the recommendation, the clinic offers a loan that enables me to use as many machines or masks that I’d like for a month. ResSleep maintains a high level of contact during this time to ensure that the patient’s comfort is maximised – if a particular mask is unsuitable, the patient can easily interchange them until they find the right fit. This again illustrated the high level of service provided by Resmed’s network.
This experience has helped me appreciate why Resmed is the global leader in the sleep apnea market. But in order to fully understand the appeal of Resmed (and hence it’s potential to generate long-run value) I will need to trial the machines and experience the after-care service first hand. I hope a one-month trial of the machines may not only benefit me, but Montgomery’s clients as well.
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.
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Chris B
:
Great article. This is one of the best companies on the ASX. Naturally I am interested in the whole sales process of Resmed and wonder why more people are not interested.
Tom Hunt
:
How can one value a company traded on the ASX when the annual reports from the company are for the US market?
I have done a search trying to find the AU annual report, or at least the aspects of the US report which shows the AU section, but cannot find it.
Roger Montgomery
:
Resmed is listed on the New York Stock Exchange, but it has a secondary listing via Chess Depository Instruments (CDI) on the ASX. Because of this, all of the company’s reporting is done in accordance to US listing rules, which is why the company does not have a specific report for Australia.
With Resmed, ten CDIs on the ASX represent one share of common stock on the NYSE, so after accounting for this ratio, the only difference between the two share prices should be the AUD/USD exchange rate. We can therefore value the company in US dollars, and then convert it at the AUD/USD exchange rate to determine the value in Australian dollars.
Graeme Cox
:
Very interesting to get more information and personal at that Ben. I wrote to Roger this week to query the MOS used in a number of companies he featured in this week’s video, as they were quite different from Skaffold’s. He supplied an explaination in record time by the way! Anyway,as I related to him. I am a shareholder of Resmed and could not find any information on Skaffold but I was in Istanbul the week before and while walking around came across a whole bank of shops with Resmed’s products on full display in their windows. On the strength of this I added to my holding, reasoning that if they were big in Turkey, they would be popular almost everywhere. Roger advised that as it is listed overseas, it is not listed in Skaffold and that you had to do your own calculations on RMD. Keep up the good work, sleep well and I look forward to your conclusions after your month’s trial.
tony.kerr.aus
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I hope it goes well for you. I have been using a Fisher&Paykell CPAP (Constant Positive Airway Pressure) machine for a couple of years and it has made quite a difference. Once you get used to the mask, you find that you just can’t sleep well without it. Mostly because the apnea returns and keeps you awake. Now all I have to do is get my weight down to below 90kg, then I probably won’t need it any more.
fp
:
Hi Roger,
Interesting company to look at. Its strength would have to come from their professionalism, customer education and being first to list but doesn’t their limited product range (which solely focuses on sleep masks, the associated pieces and accessories) raise concerns about their competitiveness.
As an example of their competition – one Australian based competitor (that I have and continue to use with annual check ups, and who also educate you in the first and continuing appointments and provide friendly professional service) offers both the sleep mask (albeit in comparison a limited range) as well as what I would call mouth guards (you don’t notice you are wearing them) and has a number of types of mouth guards (to fit budget and personal needs).
I would think a lot of business is lost to competitors offering these products should RESMED continue not offering this product range (as it is suitable for those with mild to high sleep apnoea). As a side note (and putting it mildly) I have high sleep apnoea and use the mouth guard which has resulted in a significant reduction of my nightly instances of sleep apnoea, increasing my energy and alertness, and reduction/eliminating my snoring (needless to say my girlfriend is much happier) and as a result I have referred others to this company (unpaid unfortunately but I know I’m helping others with the referral).
I can see the appeal not to offer this product range as it is less expensive than the sleep mask, its associated equipment and accessories however being a young active person a mouth guard is more appealing to wear when sleeping next to my girlfriend then wearing a mask and its device… Also, I wonder what the margin is on the mouth guard and how much business RESMED lose by not offering it? (i.e. customers with mild to moderate sleep apnoea foregoing a mask due to cost and appeal).