Thursday 21 September 2017

Share watch: Ageing population ensures Demant is in high demand

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John Lynch

A remarkable one in every 10 people in the world over the age of 50 is understood to suffer hearing loss. The problem is not improving, given that the elderly are now sticking around for a lot longer than they used to.

Assuming that the marketing people are right when they say that 13 million hearing aids and 60,000 hearing implants are sold every year, the smart investor is fast asleep if he/she is not attracted to the investment potential of the leading edge suppliers to this market.

The most interesting supplier I could find is the Copenhagen-based specialist, William Demant A/S. Hardly a household name, but known in Ireland as Hidden Hearing, Demant has, nevertheless, been serving the interests of the 'hard-of-hearing' for more than 113 years.

Today, it makes and sells hearing devices of all shapes and sizes, featuring brands like Oticon, Bernafon, and Sonic. The group operates its own companies in 30 countries, with distributors in another 130 locations around the world.

Its manufacturing arm Oticon is the world's second largest manufacturer of hearing aids. Listed in Copenhagen, it has a market value of €5.7bn and employs 12,600 people.

The company was the brainchild of Hans Demant, who started to import hearing devices to Denmark in the early years of the 20th century and quickly built up a business in the Nordic countries.

The company faced the familiar challenges during the two world wars and the Great Depression, but with the arrival of the 1960s it was happy to take on the rest of Europe, the US, and more recently China. It didn't get a market listing until 1995.

Just now the global market for hearing products is estimated to be worth $6bn (€5bn), with Europe and the US providing by far the biggest demand. The experts believe that the market is growing at 4pc to 6pc each year due to the world's ageing population. That might understate the position with improved healthcare in Asia.

However, the industry is highly competitive, with six major companies competing for market share.

The European market is consolidating and, following Demant's acquisition of the French retail chain, Audika, its competitor Sonova acquired the European retail company, AudioNova.

Demant A/S has a presence in all product segments - hearing devices, hearing implants, diagnostic instruments and headphones (used in call centres). Its largest business is still in hearing aids, which account for 88pc of revenues. This business had strong growth last year and a one-third increase over the last three years. Interestingly, last year it launched the world's first hearing aid that connects and interacts with the internet.

The group's diagnostic instruments business is the market leader and had sales of €150m last year, driven by strong performances in Asia and the Pacific region. It reported challenging conditions in oil-dependent markets. Hearing implants is the group's smallest business with 3pc of group revenues.

Europe is Demant's largest market with 43pc of total revenue, up 24pc last year helped by its acquisitions. The North American market generated sales that were 39pc of group revenue. While the US market retail sales were flat, Canada showed strong growth.

I had a close look as the trends in the Demant business over the last five years.

Revenues of €1.6bn are up 40pc, operating profits reached a record high last year, showing a 29pc increase since 2012. Cash flow from operations gained 38pc in the same period.

Importantly for investors, dividend payouts increased 27pc. The shares meanwhile have had a decent showing. They hit a five-year high early this year, up from a yearly low of €14. Today, they trade above €22.60.

The Demant family is still keeping a tight grip on the business, with its 'family foundation' controlling 60pc of the stock. However, a Canadian pension fund investor recently bought a 7.8pc stake, suggesting that shares may be 'one to watch'.

Nothing in this section should be taken as a recommendation, either explicit or implicit to buy any of the shares mentioned.

Irish Independent

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