Saturday, 25 February 2023

ScoPo’s Powerplays: ASX health stocks have lacklustre week as Monash IVF continues to gain market share

by Berkeley Lovelace

  • ASX health stocks fall 1.2% in the past five days  as macro economic factors weigh on broader markets
  • Monash IVF has reported a solid H1 FY23 result with underlying NPAT of $12.6m, ahead of guidance
  • Pharmaceutical distribution group  EBOS posted a record H1 FY23 result including 17% revenue growth

Healthcare and life sciences expert Scott Power, who has been a senior analyst with Morgans Financial for 26 years, explains what the movers and shakers have been doing in health and gives his ASX Powerplays.

How are the relationships in your life? Satisfying relationships in midlife with partners, friends, or work colleagues have been linked to a lower risk of accumulating multiple long-term conditions in older age — at least among women, according to research published in the journal General Psychiatry.

Researchers investigated 13,714 participants of the Australian Longitudinal Study on Women’s Health (ALSWH), an ongoing population-based study looking at factors associated with the health and wellbeing of women who were aged 18-23, 45-50, and 70-75 in 1996.

All the women in the study were aged 45-50 in 1996 with their health and wellbeing tracked every three years up until 2016 via a questionnaire.

The women were asked to rank their levels of satisfaction with five categories of relationships on a 4-point scale.

The final analysis included 7694 women, 58% (or 4484) of whom accumulated multiple long term conditions over 20 years of monitoring.

Those who acquired multiple long-term conditions were more likely to find it difficult to live off their income, have lower educational attainment, be overweight/obese, physically inactive and smoke, along with having had a surgically induced menopause.

But relationship satisfaction was also a key factor. Compared with women reporting the highest level of satisfaction, those who reported the lowest were more than twice as likely to accumulate multiple long term conditions after fully adjusting for other potential influences.


To markets

And ASX health stocks could do with improving their wellbeing this week. At 1pm (AEDT) the S&P/ASX 200 healthcare index (ASX:XHJ) was down 1.2% for the past five days, while the benchmark S&P/ASX 200 (ASX:XJO) was down 1.4% for the same period.

“The markets have been very lacklustre all week driven by the macro picture,” Power said.

“Last week we said the stronger US economy has implied the US Fed will progressively keep rising interest rates so that has been perceived negatively by the markets generally continuing into this week.

“That nice run we had at the beginning of the year has petered out despite some solid results across the healthcare market.”


Monash on fertile ground for growth

Power said his pick last week fertility company Monash IVF Group (ASX:MVF) has reported a solid H1 FY23 result.

Underlying NPAT of $12.6m which was slightly ahead of guidance, while despite industry volumes declining in the half, MVF continues to gain market share in its key markets through both organic growth and through acquisitions.

Power said a strong increase in new patient registrations for Q2 gives Morgans confidence in the pipeline for H2 FY23.

Management has revised its guidance for FY23 of underlying NPAT of $25.5m or 15% growth on FY22. Previous guidance at the AGM was for 10% growth.

Morgans have increased its target price to $1.29 from $1.24 and maintained an Add recommendation.


EBOS posts record result

Pharmaceutical distribution group  EBOS (ASX:EBO)  posted a record H1 FY23 result with key highlights including revenue growth of 17%, underlying EBITDA growth of 39.3% and underlying NPAT growth of 29.6%.

Power said the company has navigated an operationally challenging environment with supply chain issues and cost pressures.

During the half, EBO incurred $13.5m ($9.4m post tax) of one-off costs associated with the amortisation expense attributable to the LifeHealthcare acquisition.

EBO expects further one-off costs in H2 of ~$12.5m ($8.7m post tax).

EBO declared an interim dividend of NZ.53 cents (AUD 48 cents).  Operating cash flow was solid, up to $161.1m (pcp $106.8m) driven by strong earnings growth, partially offset by higher finance and tax payments.

“EBO continues to be a leader and hold strong market positions in both healthcare and animal care operating segments,” Power said.

Morgans have upgraded its EPS forecast by ~1% in FY24/25. As a result, Morgans 12-month target price has increased to $44.12 from $43.75 with an Add  rating maintained.


Nanosonics H1 FY23 in line with forecasts

Power said H1 FY23 results for  disinfectant device maker Nanosonics (ASX:NAN) were in line with Morgans forecasts and recent pre-released guidance. Among key highlights were:

  • Revenue of $81.6m, up 35% on pcp (cc 27%)
  • Gross profit margin of 78.9% up  76.6% in pcp
  • NPAT of A$10.4m,
  • Underlying EBITDA of A$12.8m
  • EBITDA margin of 15.7% .

NAN said its transition to a direct sales model is largely complete and reconfirms FY23 guidance.

The company has developed and commercialised the trophon EPR device, a unique automated disinfection technology, which was the first major innovation in disinfection for ultrasound probes in more than 20 years.

The trademarked CORIS device is attempting to solve a complex disinfection problem in removing the biofilm from the flexible endoscope.

NAN said the CORIS launch remains on track for limited commercial launch by late CY23 in Australia and/or Europe subject to regulatory approval.

The opportunity for an upgrade of its Trophon EPR device to the Trophon2 is also large with over 7,000 units in the US more than seven years old. North America upgrades in H1 FY23 were 800, up 100% on pcp.

“The market should be comfortable with this result and outlook commentary,” Power said. The NAN share price is up more than 10% YTD. Morgans have upgraded their target price to $5.24 from $5.19 and maintained an Add rating.


The MVF, EBO & NAN share price today:


ScoPo’s Powerplay

Power’s pick of the week is health imaging company Mach 7 (ASX:M7T) , which is due to release its half yearly results next week.

M7T posted a record Q2 FY23 in sales orders, aided by the signing of its largest contract to date in December with Nasdaq-listed Akumin Inc.

Sales orders for Q2 FY23 were a record $22.4 million (TCV), up 280% on $5.9 million in Q2 FY22 (or up 240% on $6.6 million in constant currency).

“We’ve got enough confidence that operationally they are doing very well and we’ve seen that through their quarterly reports coming through,” Power said.

“Mach7 is looking very good.”


The M7T share price today:


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