Just under a year ago, US President Joe Biden issued the "Executive Order to Promote Competition in the American Economy". The package of measures included a total of 72 initiatives aimed at lowering prices for families, increasing workers' wages, driving innovation and ultimately boosting growth in the world's largest economy. With his directive adopted on July 9, 2022, the President also focused on the 48 million Americans who suffer from hearing loss. To them, Biden promised lower-cost hearing aids. Meanwhile, the U.S. Food and Drug Administration (FDA) has implemented his directive and introduced a category for over-the-counter (OTC) hearing aids. Consumers with mild to moderate hearing impairment can purchase the comparatively inexpensive devices on their own and do not need to consult a doctor or hearing care professional.
The world's largest hearing aid manufacturer was hit by the political push at a time when business was weakening anyway. In mid-August 2022, Sonova had to revise its forecast for the financial year 2022/23 (as of the end of March 2023) downward. Management justified this step with a restrained market development and higher procurement costs. To make matters worse, the Group also lost an important customer in the USA last year. Sonova is not naming the customer. However, analysts agree that the Costco wholesale chain has removed the Swiss company's hearing aids from its product range. Whatever the case, Sonova lost considerable momentum last year. Only thanks to acquisitions did the Group still manage double-digit percentage sales growth. Organically, revenues advanced by only 2.3%. Sonova even posted a decline in operating profit (Ebit level) (see chart). For the current period, CEO Arnd Kaldowski expects - assuming constant exchange rates - an increase in sales of 3% to 7%. Adjusted Ebit is expected to advance by 6% to 10%. According to the chief, it will take time for Sonova to return to "normal growth rates" due to weak demand and the loss of the U.S. client.
He is not idly watching the development in the States. With the Sennheiser All-Day Clear, the Group has just ventured into the new OTC market. The multifunctional hearing aid can be controlled via a smartphone app and used to stream music. "A little more than a year after the acquisition of the Sennheiser Consumer Division, we have now achieved an important strategic goal: to offer Sennheiser-branded hearing solutions that accompany people on their journey to good hearing right from the start," Arnd Kaldowski commented on the product launch. According to industry insiders, the OTC segment could shake up the market for hearing aids. It's not there yet. Accordingly, most analysts are rather cautious about Sonova. J.P. Morgan, for example, has just downgraded the SMI stock from "Overweight" to "Neutral". The U.S. bank does not see any short-term drivers that could push up multiples or earnings expectations for Sonova. J.P. Morgan is not alone with this verdict. On Reuters, the analyst consensus for the share is currently "Hold".
A new soft-callable barrier reverse convertible (BRC) could fit well with this verdict. Irrespective of Sonova's further share price performance, Leonteq pays out the coupon of 9% p.a. here on a quarterly basis. This opportunity is partially protected: As long as the underlying does not fall to or below the barrier of 69% of the initial level, investors receive the CHF 1,000 nominal back in full. If this calculation does not work out, Sonova would have to turn upwards and end the term at or above the strike again to avoid markdowns. Please also note the soft callable feature. It allows the issuer to terminate and redeem the BRC early. All in all, this structured product offers an interesting alternative to direct investment. A price consolidation in the Sonova share would be enough to generate an attractive CHF return.
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