Business SummaryCochlear Limited (COH) is a manufacturer and distributor of cochlearimplantable devices for hearing impaired. Cochlear have operations in morethan 20 countries distributing its products in America, Asia Pacific, Europe,Middle East and Africa. It offers three main products namely: Cochlearimplants, Baha bone conduction implants and Cochlear WirelessAccessories.

Cochlear implants: Cochlear implant is a solution for people with moderateto profound hearing loss. They provide solution through their Nucleus7system, the system comes with SmartSound IQ which has range of advancedsound processing technology designed to deliver a hearing experience.Cochlears implant systems comprise an implant which is inserted duringsurgery and an external sound processor. The external sound processor canbe upgraded with new technology as it becomes available.

Baha bone conduction implants: Baha bone conduction implants is asolution for the people with conductive hearing loss, mixed hearing loss andsingle-sided deafness. The Baha System uses the bodys natural ability toconduct sound through bone conduction, and has the potential to make animmediate impact on how well you hear and communicate.

Cochlear Wireless Accessories: Cochlear Wireless Accessories helps toexplore audio unbound by the constraints of wires and bulky componentsfrom less advanced systems. They have range of accessories available thatlet you engage and interact in any number of hearing situations. CochlearWireless accessories uses the 2.4GHz technology platform for theiroperations.

Latest ResearchPast the bottom but some way off normal

We reduce our FY21-22e EPS by -24%/-27%. Our target price declines to

$184/share (from $203) on lower earnings forecasts for the next threeyears. Downgrade to Sell (from Neutral) on valuation – We now forecastthat Cochlear will have flat sales in FY21 vs FY20, growing in FY22 (wepreviously expected a recovery in 2H21).

For more information see research 19 Aug 2020.

GICS - Healthcare

Cochlear Limited

ASX Code: COH Price: $201.74 12 Mth Target Price: $184.00 Rating: Sell

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Snapshot

DateMarket Cap.Shares on issue12 Month High12 Month Low

26 September 2020$13,261m65.7m$254.40$154.60

RatingRating12 Mth Target Price

Capital GainGross Yield

Implied Total Return

Sell$184.00-9.0%2.2%-6.8%

Investment FundamentalsFYE 30 Jun 2020A 2021F 2022F 2023F

Profit $m 154.0 179.0 289.0 343.0Profit (norm)* $m 154.0 179.0 289.0 343.0

EPS* ¢ 258.0 273.0 440.0 523.0EPS Growth % -46.1 5.8 61.2 18.9P/E* x 78.4 74.1 45.9 38.7P/E Relative % 0.0 0.0 0.0 0.0

DPS ¢ 160.0 0.0 310.0 365.0Yield % 0.8 0.0 1.5 1.8Franking % 100.0 0.0 100.0 100.0* Adjusted for goodwill and unusual itemsSource: Based on Citi estimates

Share Price Chart

Total Return on $10,000 Investment

Profit & Loss ($M)2016A 2017A 2018A 2019A 2020A

Sales Revenue 1,131 1,254 1,364 1,427 1,321Total Revenue ex. Int. 1,145 1,258 1,374 1,456 1,399EBITDA 296 347 380 398 306Depreciation & Amort. -33 -31 -34 -38 -29Goodwill Amortisation -- -- -- -- --EBIT 263 316 345 359 277Net Interest -8 -7 -8 -4 -9Profit Before Tax 254 309 337 355 268Income Tax -65 -85 -95 -89 33Outside Equity Int. -- -- -- -- --Profit after Tax 189 224 243 266 301Significant Items after Tax -- -- 3 11 -540Reported Profit after Tax 189 224 246 277 -238Preferred Dividends -- -- -- -- --

Cash Flow ($M)2016A 2017A 2018A 2019A 2020A

Receipts from Customers 1,106 1,221 1,350 1,448 1,404Funds from Operations 271 342 362 384 -98Net Operating Cashflow 185 260 258 296 -158Capex -38 -62 -50 -115 -130Acquisitions & Investments -14 -65 -6 -23 -379Sale of Invest. & Subsid. -- -- -- -- --Net Investing Cashflow -50 -136 -55 -138 -510Proceeds from Issues 9 9 -0 7 862Dividends Paid -120 -144 -161 -182 -194Net Financing Cashflow -131 -108 -233 -141 1,154Net Increase Cash 4 16 -30 17 487Cash at Beginning 72 75 90 62 79Exchange Rate Adjust. -1 -2 2 -0 -1Cash at End 75 90 62 79 565

Ratios and Substantial Shareholders2016A 2017A 2018A 2019A 2020A

Profitability RatiosEBITDA Margin % 26.19 27.66 27.83 27.88 23.18EBIT Margin % 23.23 25.17 25.32 25.18 21.00Net Profit Margin % 16.71 17.83 17.80 18.64 22.81Return on Equity % 42.12 41.13 39.73 36.63 21.49Return on Assets % 20.38 20.14 21.49 19.54 11.98

Debt/Safety RatiosNet Debt/Equity % 26.27 23.80 14.11 14.19 9.95Interest Cover x 31.49 46.58 43.71 79.84 31.16

Top 5 Substantial ShareholdersBlackRock Group 6.1%Baillie Gifford & Co 6.0%The Vanguard Group,Inc 5.6%Veritas Asset Management LLP 5.6%

Balance Sheet ($M)2016A 2017A 2018A 2019A 2020A

Cash & Equivalent 75 90 62 79 565Receivables 282 292 317 320 236Inventories 154 160 167 195 224Other Current Assets 32 44 39 41 453Current Assets 543 586 584 635 1,478Prop. Plant & Equipment 87 120 128 167 439Intangibles 224 340 345 424 410Other Non-Current Assets 33 45 41 45 458Non-Current Assets 414 550 573 744 1,098Total Assets 957 1,136 1,157 1,379 2,576Interest Bearing Debt 193 219 148 182 704Other Liabilities 316 374 398 472 470Total Liabilities 509 593 546 653 1,174Net Assets 449 544 611 726 1,402Share Capital 159 169 173 182 1,272Reserves -15 -13 -34 -15 13Retained Earnings 304 387 472 559 116Outside Equity Int. -- -- -- -- --Total Shareholders Equity 449 544 611 726 1,402

Current Analyst Recommendations *

* Source: Morningstar. This chart shows the spread of recommendations from thosebroker analyst's in Australia with research coverage of this stock.

Principals & DirectorsPrincipals

Company Secretary Mr Ray Jarman

Directors

Mr Michael Grenfell Daniell(Non-Executive Director)Mr Roderic (Rick) Holliday-Smith(Non-ExecutiveDirector,Non-Executive Chairman)Ms Catriona Alison Deans(Non-Executive Director)Mr Andrew Leslie Denver(Non-Executive Director)Ms Yasmin Anita Allen(Non-Executive Director)Mr Donal Paul O'Dwyer(Non-Executive Director)Mr Glen Francis Boreham(Non-Executive Director)Professor Bruce Gregory Robinson(Non-Executive Director)Mr Dig Howitt(President,Chief Executive Officer,Managing Director)Mr Shah Abbas Hussain(Non-Executive Director)

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Cochlear Limited

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