Philips/Healthineers: organ players
Both groups are bets on fast-changing medical tech, but which has better vital signs?
“The machine that goes ping” starred in a Monty Python sketch about gadget-obsessed doctors. Better than expected fourth-quarter results from Philips last week triggered an upwards “ping” on share traders’ screens. Even so, those look weedy compared with rival Siemens Healthineers.
Both companies are bets on fast-changing medical technology. Both are the products of corporate streamlining. Comparisons are invidious but necessary.
Once a sprawling conglomerate, Philips spun off television and lightbulb businesses to focus on hospital technology and personal care. Chief executive Frans van Houten argues its restructuring created flexibility in a healthcare sector prone to disruption from big data and artificial intelligence. He sees a “vacant space” for the Dutch group and is shifting its focus from selling gadgetry to providing services.
Pharma companies and US tech start-ups are in the mix, too. But Healthineers is the obvious read-across. Venerable conglomerate Siemens listed the business last year, keeping an 85 per cent stake.
Which has better vital signs? Both spend about 10 per cent of sales on research. Healthineers’ pipeline includes ideas for artificial intelligence-powered virtual human organs for testing treatments. With net debt not much higher than operating profits, firepower for acquisitions is similar.
However, Healthineers, which is strong in imaging devices, benefits more from economies of scale. Operating profit margins of about 18 per cent compare with about 15 per cent at Philips, where they remain a case for treatment. Healthineers’ shares, up a fifth since its March flotation, trade at 20 times forward earnings. Philips, on a multiple of 18, is still a recovery story. Healthineers hopes for improvements in its weaker diagnostics division.
Emergent digital medicine is as much of a black box as the machine that went ping. Old fashioned diagnostics make Healthineers the livelier prospect.