Cochlear

Wednesday 14th September 2011

Cochlear's (ASX: COH) voluntary recall of its Nucleus CI500 range of implants has caused several brokers to dramatically review their ratings on the shares.

On Monday 12 September 2011 COH announced it was undertaking a voluntary recall of its unimplanted Nucleus CI500 range after a recent increase in failures in its Nucleus CI512 implants. "In an abundance of caution, Cochlear has issued a voluntary recall of the Nucleus CI500 range of cochlear implants while it further investigates the cause of this issue," the company said in a statement.

Cochlear is the global leader in implantable devices for the hearing impaired and is a world-leading manufacturer and marketer of cochlear hearing implants with a reported global market share of around 70%. COH’s solutions for hearing loss include cochlear implants, bone conduction implants, implants for electro-acoustic stimulation, auditory brain stem implants and implants for direct acoustic stimulation.

Broker recommendations are as follows:
Goldman Sachs cuts to sell from hold.
Merrill Lynch adjusts to underperform from neutral.
Credit Suisse has cut its target to A$63 from A$70, but keeps its neutral rating.
UBS cuts to sell from neutral.
Nomura cuts to neutral from buy.
Citigroup cuts its target to A$43.90 from A$62.08.

Dan Stratful broker at Investment Research Group (IRG) says that “Cochlear has traditionally traded at a premium on the market due to its dominant global market share of around 65-70%. That premium is now being put in question after a recall which could reportedly threaten its market share.”

COH reported that revenue for the year ending 30 June 2011 (FY11) rose by 10% to $809.6 million beating analyst expectations of $782.2 million. Sales, excluding FX contracts, were $732.2 million, up 5% in reported terms, however in constant currency sales were up 17%. Net profit for the year was a record $180.1 million, up from $155.2 million last year and slightly above the average of seven analysts' expectations of $177.5 million.

The FY11 result was achieved in difficult global financial conditions and highlighted the multiple growth drivers the business delivers across products and geographical spread. With 95% of the company's sales outside of Australia, COH is highly exposed to the fortunes of the AUD, which the company manages through a non-speculative currency hedge program which protects it from currency volatility.

Contact IRG on 0800 437 8489
Dan Stratful
Authorised Financial Adviser (AFA)
dan.stratful@irg.co.nz

**A disclosure statement is available, on request and free of charge by calling 0800 437 8489.

Recommendation sourced from the IRESS software trading platform

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