Designer and manufacturer of respiratory equipment, Fisher & Paykel Healthcare (ASX:FPH) posted a strong profit result for the FY17 financial year, including a near 20% growth in profit to shareholders, which was well received by investors. These profit figures were somewhat dampened by unusually high legal costs, as Fisher & Paykel Healthcare seeks to rigorously defend its intellectual property in the courts. We expect such costs to ‘mean revert’ to lower levels in the medium term.

Both key operating divisions again reported solid revenue growth, suggesting ongoing market share gains for the OSA (obstructive sleep apnoea) division and further penetration of various hospital-based treatments for the RAC (respiratory) division.

In the medium term, ongoing growth and penetration of hospital-based oxygen treatments, the recent in-sourcing of Fisher & Paykel Healthcare’s US salesforce and expanded manufacturing capacity in lower-cost jurisdictions, should all contribute to future profit growth.

Further over the horizon, we have a positive view on Fisher & Paykel Healthcare’s use of various ‘oxygen’-based treatments in COPD (Chronic Obstructive Pulmonary Disorder) in the home setting which should reduce complications and costs, subject to further clinical validation. Evidence for the use of Fisher & Paykel Healthcare’s technology in these areas is building, but we do not expect material contribution to sales in the short term. (VIEW LINK)