By Chris Shaw

The Australian banking sector has for some time been the favourite of analysts in terms of likely capital raisings but while only National Australia Bank (NAB) has come to the party to date (beyond underwritten DRPs) a number of other companies have taken the opportunity to repair their balance sheets, among them Sonic Healthcare ((SHL)).

The company announced plans to raise $350 million at a price expected to be $11.60 per share, though as Deutsche Bank notes strong demand for the issue means there is a chance it will be increased to $425 million in total. While obviously dilutionary in earnings per share terms the broker is in favour of the issue, noting not only will it allow for a recapitalising of the balance sheet but will provide funds for further acquisitions.

This is where the issue becomes a positive as these acquisitions, and UBS suggests there are currently opportunities in both the US and EU markets the company is assessing, will provide a boost to earnings in coming years. As well, Deutsche Bank expects the company to benefit from the current Australian dollar weakness, which it suggests will help in the sense that current earnings guidance, which calls for more than 10% growth in earnings per share terms in FY09, is likely to prove conservative.

The other factor the broker likes about the stock is a portion of its Australian earnings come from government contracts, as evidenced by two new contracts being announced for the diagnostics imaging division, which makes the group's earnings relatively defensive. Add in forecast earnings per share growth of better than 10% through to FY11 and the broker sees a number of reasons in support of its Buy rating.

Credit Suisse is similarly optimistic as it too expects a portion of the equity raising to go to acquisitions that will support earnings growth, all of which should generate additional synergies with the company's existing businesses. As well, GSJB Were notes Sonic shares at present are trading in line with its domestic services peer group, which is well down from its historical premium of 15-20%. This makes the stock good value given the defensive quality of its earnings in the broker's view and as a result it has upgraded to Buy from Hold.

The FNArena database shows opinion on the stock remains positive as the company scores eight Buy ratings and one Accumulate, with only Merrill Lynch regarding the stock as a Hold. It is worth noting their most recent report was the end of September, so the latest announcements may cause some reassessment on Merrills' part.

The price target for the stock has come down as brokers adjust for additional shares on issue and now stands at $15.85 according to the database, compared to $16.35 previously. Sonic shares today are weaker in line with the broader market and as at 12.50pm the stock was down 59c or 4.5% at $12.41. The shares have traded in a range of $12.06 to $17.67 over the past 12 months.

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