Downgrade for Sonic

Sonic has downgraded FY15 EBITDA 3-4% lower the prior guidance to A$730m on the back of issues impacting its domestic pathology business, including lower patient volumes, fee changes to certain tests and increased collection costs. SHL also provided FY16 EBITDA guidance between A$850-875m. While this guidance reflects a 16-20% yoy increase, it sits more than 6% below consensus expectations at the mid-point. However, this guidance does not include potential earnings from the C$3bn tender win with Alberta Health Services inked last year due to “uncertainty around the commencement data”. Management will provide an update to this guidance in the coming months. While it is clearly disappointing to see SHL follow in PRY’s footsteps and downgrade FY15 estimates, the market has already marked down the stock by more than 7% which should limit the impact today. (SHL, Add, Price Target A$24.13)