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Resmed is due to report its FY07 result next Wednesday morning, 8 August. RMD has had a difficult few months, falling over 37% since February. Macquarie Research Equities (MRE) have a $5.82 price target on RMD, and believe further positive catalysts include the company’s quarterly results showing continued market share gains in the US and recovery of the
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business’s European operations.




Broad market growth drivers are intact. MRE expect market growth to continue being driven by factors including new product launches (particularly for RMD); central sleep apnoea (Adapt SV); increased recognition of morbidity associated with OSA and home diagnosis.

Key competitor RESP’s 4Q07 result last week was positive for RMD given that it suggested that market growth is not decreasing as feared, while also suggesting RESP had not gained US market share. However, RMD still has to cope with its voluntary S8 flow generator recall announced at the 3Q07 result in April along with increased pricing pressure from RESP.

Period of strong comparables almost over. In the last quarter, while RMD was clearly suffering a comparable sales growth hurdle of its own making, them quarter was also vulnerable on account of its lack of new US products driver. It was at this time that RESP decided to capture share in a market in which it had no previous presence, seeding the market with its new Optilife nasal pill ow product to address RMD’s dominance of this market segment.

Margins may have experienced some prolonged pressure. Despite RESP appearing not to have gained much market share, we understand that it has maintained price differentials with RMD products in the order of 20-25%. RMD has often in the past said aims not to compete on price long term; this result could be telling from the price perspective. However, RMD’s new product launches over the period should support margins.

Action and recommendation
At this result, RMD will be cycling a tough US comparable of 44% created by itself with earlier successful product launches. To a moderate extent, RMD’s AUD cost base will not help against the comparable quarter despite the benefit from stronger currencies for international sales.

However, MRE expect RMD to see stronger growth in the more fragmented international markets and have confidence in the broad market growth drivers remaining intact.