February 26, 2013 / 10:21 AM / 5 years ago

UPDATE 2-William Demant shares drop as outlook disappoints

* FY op profit 1.65 billion crowns vs f‘cast 1.7 bln

* Analysts see forecast cuts for current year

* Pins hopes on new devices including Oticon Alta

* Shares down 4 percent, hit lowest since Jan 2012 (Recasts, adds analyst comments, shares)

By Balazs Koranyi and Stine Jacobsen

COPENHAGEN, Feb 26 (Reuters) - Danish hearing aid maker William Demant gave lukewarm guidance on Tuesday on its prospects for the current year, dousing hopes for a revamped product range and sending its shares to a 13-month low.

Demant said it hoped several new products to be launched this year - particularly a range called Oticon Alta - would make up for a weak close to 2012, yet some analysts saw this as modest guidance for a product with high hopes and warned that earnings were set to be weaker than earlier thought.

The group, which stands to be a prime beneficiary of demographic trends as the population ages, nonetheless struggled in 2012 as rivals like GN Store and Sonova lured customers with newer, sophisticated devices.

Posting 2012 earnings which fell short of analyst expectations, the company said it expected revenue growth to exceed market growth rates by between 3 and 5 percentage points this year and expected a rise in operating profit.

Yet some analysts detected indications that prices would continue to be squeezed, even with the launch of Oticon Alta - which the company says offers improved speech intelligibility even in difficult listening environments.

“They indicate without explicitly saying that their average unit price will remain under pressure,” Michael Friis Joergensen, an analyst at brokerage Alm Brand, said. “The mid-segment of the market is still down ... Market estimates for 2013 should be substantially reduced for 2013.”

Demant shares traded 4 percent lower at 463 crowns by 0900 GMT after falling as low as 453 crowns, their lowest since January 2012.


The firm’s full-year operating profit fell to 1.65 billion crowns ($292.2 million) from 1.71 billion and came short of analysts’ expectation for 1.7 billion.

More importantly, its operating margin shrunk to 19.3 percent from 21.3 percent as rivals cut prices.

“Given the second-half margin miss, we could see an around 10 percent downgrades to consensus EBIT forecasts,” JPMorgan said in a note.

Previous market forecasts for a 2 billion crown operating profit this year imply a 17 percent rise, a figure that is well out of reach now, analysts said.

Still, some company watchers said Oticon Alta should help the firm once sales gain momentum, providing upside for the stock.

“We view management guidance of hearing instrument growth of 3 to 5 percent above ‘modest’ market growth as conservative,” UBS said. “We anticipate significant growth assuming Alta is successful.”

William Demant shares, down 7 percent over the last 12 months, are valued below peers, reflecting uncertainty on whether its new products will help to restore its fortunes.

It trades at an enterprise value to 2013 EBIDTA (earnings before interest, tax, depreciation and amortisation) of around 12.5 to 13, according to Reuters data, below GN Store’s 13 to 13.5 multiple and Sonova’s ratio above 14.

$1 = 5.6464 Danish crowns Editing by Mark Potter and David Holmes

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