by Travis Nice on

Now that they’re half way through their financial year, I take a look at the financials and make my SHL Share Price Forecast for 2022.

As is always the case, my forecasts are my opinion only, they are not a recommendation nor are they advice. Furthermore, please do not act on anything you read here without first consulting a registered tax agent, financial planner, or a solicitor.

Moreover, I’m going to keep things simple, everything is back-of-the-envelope style. That is to say, this site is not about active trading, nor is it about academic rigor.

## Assumptions

For this forecast I assume that the number of outstanding ordinary shares remains unchanged throughout the year at 477,918,547 shares.

## Projections

Ultimately, I want to find a single share price at the end of Sonic Healthcare’s financial year, the 30^{th} of June 2022. To keep the forecast simple, I will extrapolate Sonic Healthcare’s Revenue, Earnings, and Equity into the next year.

### Revenue

I find that Revenue is a good measure of a company, or in this case, the Change in Revenue. The Change in Revenue shows how well a company is selling its products, in other words, how well they get the right product, to the right people, at the right time, and for the right price.

The Average Annual Change in Revenue for Sonic Healthcare is about 11%pa. This covers the ten years of data shown in the SHL company page.

I now make a projection of Revenue by increasing last year’s Revenue of $8,754,123,000 by 11% to make next year’s estimated revenue of $9,736,765,000.

### Earnings

Next, I use Earnings as a measure of how efficiently the company converts its Revenue into Profit. In this case, similarly for Revenue, I use the Average Annual Change in Earnings as the measure.

For Sonic Healthcare, the Average Annual Change in Earnings is 22%pa over the ten years shown in the SHL company page.

I project the Earnings by increasing last year’s Profit of $1,347,658,000 by 22% to produce next year’s estimated profit of $1,640,643,000.

### Equity

Finally, I turn to Sonic Healthcare’s Equity otherwise known as the Book Value. This helps us to measure how well a company cares for, and manages its assets. Theoretically this value shows how much money will be left over after the company sells all of its assets and pays all of its debts.

The Average Annual Change in Equity for Sonic Healthcare comes to 10%pa over the ten years shown in the SHL company page.

I project the Book Value by increasing last year’s Equity figure ($6,504,343,000) by 10% to get next year’s estimated Book Value of $7,166,085,000.

## Ratios

To help me calculate a Share Price from the projected figures above, I need to know the relationship between the projections and the share price. I can use three ratios to do this: Price to Sales Ratio; Price to Earnings Ratio; and the Price to Book Ratio.

### Price to Sales Ratio

The easiest way to explain the Price to Sales Ratio is to think of the ratio as the number of years’ worth of sales we need to pay-back our investment.

I calculate the ratio by dividing the Projected Revenue by the Number of Ordinary Shares to make the Projected Revenue per Share. In this case it is $9,736,765,000 divided by 477,918,547 ordinary shares making $20.37 of Revenue per share.

For Sonic Healthcare, over the last ten years the Annual Average Price to Sales Ratio works out at 1.89. Or in other words, you pay $1.89 for every $1.00 the company sells.

I now can work out a Share Price relative to Revenue by multiplying the Projected Revenue per Share by the Average Annual Price to Sales Ratio to find a theoretical Share Price of $38.60.

### Price to Earnings Ratio

Similarly, I use the Price to Earnings Ratio to think of how many years of Profit we need to pay-back our investment.

I calculate the ratio by dividing the Projected Earnings ($1,640,643,000) by the number of Ordinary Shares (477,918,547) to make $3.43 Earnings per Share.

The Average Annual Price to Earnings Ratio works out to 20.2 over the last ten years as shown in the SHL company page.

The theoretical Share Price relative to Earnings is 20.2 by $3.43 making a theoretical Share Price of $69.33.

### Price to Book Ratio

Likewise, I can use the company’s Book Value to estimate a theoretical Share Price. Divide the Projected Equity ($7,166,085,000) by the Number of Ordinary Shares to make $14.99 of Equity per Share.

The Average Annual Equity per Share from the SHL company page is 2.39. Multiply $14.99 by 2.39 and we arrive at a theoretical Share Price of $35.78.

## My SHL Share Price Forecast for 2022

I chose the three ratios above because they measure how well a company sells, how well it manages its costs, and how well it manages its assets. It stands to reason that we can’t just pick any one of the three prices above. Rather we will take the average of the three theoretical Share Prices ($38.60, $69.33, and $35.78) and forecast that the SHL Share Price will close at $47.90 on the 30^{th} of June 2022.