Roy Davidson, 7 March 2019



Sonic Healthcare (SHL) is a global medical diagnostics company, providing pathology and radiology services to the medical community. Based in Sydney, SHL operates in Australia, New Zealand, the US, Germany, the UK, Ireland, Belgium and Switzerland, and has over 23,000 employees worldwide.

Leading pathology provider

SHL is the largest pathology provider in Australia, Germany, Switzerland, and the UK/Ireland, the second largest in New Zealand and Belgium, and the third largest in the United States. In addition, SHL is second in the Australian radiology market, and is the largest operator of medical centres and occupational health services. Pathology is the key service, accounting for over 80% of revenues and earnings. Radiology provides over 10% of earnings.

Positive industry drivers, but acquisitions the key to growth

We expect SHL to benefit from several industry drivers in the years ahead. These include an ageing population, increasing healthcare spend, the focus on preventive medicine and improved technology which expands the range of tests that can be offered. Genetic sequencing also provides a new opportunity, and SHL has recently expanded its capability in this area. However, SHL has a track record of growing the business through executing successful acquisitions (making over 100 acquisitions in its history). These acquisitions remain integral to its business and future growth.

Reliance on government funding presents risks

SHL is reliant on Government funding to a large extent and changes to funding regimes and regulations constantly present risks. These are often no more than an announcement away. These risks have been highlighted recently, with the US and German governments both announcing funding changes. However, SHL’s global scale enables it to mitigate these risks as compared to peers, and this is part and parcel of an industry providing such stable cash flows.

Investment view

SHL provides a relatively defensive exposure to the attractive healthcare sector. It has steady revenues and earnings, due to its entrenched market position in a large number of countries and its market leading business operations. We expect SHL to provide earnings and dividend growth, as it continues its strategy to consolidate a number of fragmented overseas markets and benefits from the positive long-term drivers. The nature of the sector means SHL is continually exposed to regulatory and funding risks, which have the potential to negatively impact earnings. However, its geographic diversification helps to mitigate this risk as compared to peers.


  1. lower government funding
  2. technological change
  3. increased competition