Healthcare and life sciences expert Scott Power, who has been a senior analyst with Morgans Financial for 24 years, explains what the movers and shakers have been doing in health and gives his ASX powerplays.
 

Themes of the week

It’s been the fourth losing week for the healthcare sector, which finished the week down 4.1 per cent following Friday’s selloff.

But it’s also the end of earnings season, that time when companies report their financial performance for six months to December 31,  and Scott Power liked what he’s been seeing when he spoke to Stockhead on Thursday.

As he predicted last week might happen, Morgans got to accumulate some discounted Nanosonics (ASX:NAN) shares on Wednesday. NAN shares, which had closed at $6.05 on Tuesday, fell as low as $5.13 shortly after Wednesday’s open after the ultrasonic probe disinfection company reported first-half revenue had dropped 11 per cent to $43.1 million.

With NAN shares having already fallen significantly in January after starting the year at $8.03, Morgans overnight Wednesday/Thursday changed its recommendation from “hold” to “add,” with a price target of $6.69.

NAN shares then rebounded 9.5 per cent on Thursday and only fell 1.0 per cent during Friday’s selloff, finishing the week at $6.03.

“That played out really well for us,” Power said.

The company’s weakness in sales looks like it will reverse with a much stronger second half, and Nanosonics is planning to launch a second product next fiscal year.

“It’s a story that we think, long term, is going to do very well,” he said.
 

Micro-X

Morgans this week raised its price target on another Power favourite, miniature X-ray manufacturer Micro-X (ASX:MX1). The Brisbane company on Thursday announced that revenue was up 189.6 per cent to $2.43 million, and declared a $4.8 million loss.

“It was pretty much in line with expectations, but they’ve got quite a catalyst coming,” Power said. Most notable is an early stroke detection grant application that is due to be announced shortly.

Micro-X is also well-funded following a $30.5 million capital raising at the start of the month, Power said.

Aside from its Rover portable X-ray device, which has both hospital and military applications, Micro-X is working on an airport baggage scanner and a bomb-detecting robot.

Mx1 shares finished the week down 2.6 per cent to 37.5c

Morgans rates Micro-X as a “speculative buy” and has raised its price target from 50c to 61c.
 

Aged care commission

On Friday, the Royal Commission into Aged Care delivered its final report to the governor-general, following 28 months of work and 10,500 public submissions. The report will be released publicly next week.

“The key thing we’re looking for commentary on is funding. The industry is very much underfunded, and many of the operators are struggling,” Power said.

“So that needs to be recognised in any sort of solution put in place there. Clearly there’s going to be increased supervision, compliance, nursing costs.”

There are three listed aged care operators – Estia Health (ASX:EHE), Regis Healthcare (ASX:REG) and Japara Healthcare (ASX:JHC).

“All their share prices have recovered over the last six months, so there’s an expectation that the worst has probably passed, however, there’s fundamental sustainability questions around the sector,” Power said.

There’s been takeover speculation, including a bid for Regis that didn’t go ahead, Power noted.

Overall, Power said that aside from Nanosonics, most companies have been announcing solid first-half earnings results, including Ramsay Health Care (ASX:RHC) and Healius (ASX:HLS).
 

Powerplays

In addition to the aforementioned Micro-X, Power next week likes Opyl (ASX:OPL), which on Thursday announced positive operating cash flow of $88,000 in the quarter and that all of its existing retainer clients have retained for 2021. Morgans doesn’t rate the $6 million nano-cap company, which aids pharmaceutical and medical device companies with clinical trials.

OPL shares finished the week down 2.9 per cent to 17c.

 


 

The views, information, or opinions expressed in the interview in this article are solely those of the interviewee and do not represent the views of Stockhead.

Stockhead has not provided, endorsed or otherwise assumed responsibility for any financial product advice contained in this article.