ScoPo’s Powerplays: Health stocks on a wave of jitters as inflation storm gathers
Link copied to
Healthcare and life sciences expert Scott Power – a senior analyst with Morgans Financial for 24 years – on what the movers and shakers have been doing in health and which ASX health stocks make Scott’s Powerplays.
Look in the mirror and like to turn the clock back? Scientists at Babraham Institute says they’ve developed a new technique to ‘time-jump’ and rejuvenate skin cells.
Based on the Nobel Prize-winning method scientists use to make stem cells, using the technique scientists have been able to rewind the cellular biological clock by around 30 years according to molecular measures, significantly longer than previous reprogramming methods.
The new technique overcomes the problem of entirely erasing cell identity by stopping reprogramming midway – allowing researchers to then find the precise balance between reprogramming cells (making them biologically younger), while still being able to retain their specialised cell function.
Although in the early stages, the research could eventually have implications for regenerative medicine, especially if it can be replicated in other cell types.
To markets which have had a rocky week and are in need of a some rejuvenation. After large tumbles the market made up ground on Thursday and Friday.
But by 12:30pm (AEST) on Friday The S&P/ASX 200 index was still down 2.4% in the past five days, while the S&P/ASX 200 healthcare index, had fallen 0.65%.
This week we learned headline consumer prices rose 5.1% over the year – consensus was looking at ~4.6%. The Reserve Bank’s job description, among other things like maintaining low unemployment, is keeping inflation at between 2-3%.
So, rate hikes are now rather likely for Australians – the first time in a decade – when the RBA meets next week as it scrambles to put the inflation genie back in the bottle. Combined with the ongoing war in Ukraine, an upcoming Federal Election, China lockdowns… and the list goes on. Uncertainty equals volatility.
“Companies are doing really well but no one is watching so that’s the opportunity to pick up some good buys,” Power said.
Adelaide-based cold cathode X-ray tech Micro-X (ASX:MX1) has posted one of its best quarters to date with cash receipts of $3.6 million (including grants) and net operating outflow of $3.6 million. The company has $16.1 million in cash reserves as at March 31.
The company has a portable X-ray machine called Rover and is looking beyond the health care sector. The launch of its X-ray machine Argus has been delayed by a few months and is now scheduled for customer demonstration around July.
Morgans forecasts Argus to be a major revenue/profit driver for Micro-X with simple manufacture, higher margins and fewer regulatory hurdles. It has put a 12 month price target of 51 cents on the stock and a spec buy. Shares are currently trading ~20 cents.
Power said Medtech company Impedimed (ASX:IPD) posted its Q3 FY22 results with management calling out a pathway to breakeven using the existing cash reserves.
Impedimed reported revenue of $2.7 million, cash receipts of $2.6 million and net operating outflow of $6.5 million, leaving cash in hand of $42.9 million.
Key to achieving breakeven includes growing the number of integrated delivery networks (IDNs) signed and increasing the average monthly licence fees.
The company’s share price is currently ~12 cents with a Morgans 12 month target price of 24.6 cents.
Hearing solutions giant Cochlear (ASX:COH) looks set to acquire hearing implant business Oticon Medical from Denmark-based Demant (OMXC: DEMANT.CO) for DKK850m (A$170m).
Oticon was established ~15 years ago and could increase Cochlear’s patient base by ~75k hearing implant recipients.
According to Demant’s 2021 financial reports, Oticon had a turnover of DKK512m (cA$102m) and earnings of DKK117m (cA$23m).
However, COH said the acquisition is expected to add A$75-80m in annual revenue, although the business is currently running at a loss.
Sleep treatment medical supplies company Resmed (ASX:RMD) saw its share price fall ~5.43% to $28.71 in Friday morning trade after reporting softer than expected Q3 FY22 results.
Resmed reported revenue up 12% to ~US$864.5 million but Power said it was below Morgan’s expectations. Adjusted NPAT of US$193.3 million up 2% on last year was also below consensus of $213 million and Morgan’s expectation of US$204 million.
In an ASX announcement ResMed CEO Mick Farrell said he was was proud of the company’s global team’s ability to pivot and drive continued growth while ongoing supply disruptions and incremental revenue from a competitor’s recall continue to limit the company’s ability to meet demand.
“We remain focused on delivering products, software and services for patients, working closely with our supply chain partners as well as physicians, providers and beyond to prioritise care for patients who most need it,” Farrell said.
Power said it remains one of Morgan’s top picks in the healthcare sector with long-term growth potential.
“We take a long-term view with ResMed and its fits into our theme of hospitals without walls as they are taking a lot of diagnosis out of the hospital and into a patient’s home,” he said.
Med tech Control Bionics (ASX:CBL) continues to progress its expansion into new geographies with the successful entry in the Japanese market.
CBL this week reported its Q3 FY 22 results which was in line with expectations. Cash receipts from sale of $1.3 million with an additional $140k in R&D tax rebate. Total net operating outflows were consistent with the previous quarter at $1.6 million. Its cash balance as at March 31 was $6.9 million.
The company assists people with speech and movement disabilities such as Motor Neurone Disease (MD) to make connections with innovative devices.
Morgan’s has a 12-month target price of $1.32. It is currently trading at ~36 cents.
Cardiac-focused Silicon-Valley based EBR Systems (ASX:EBR) is Power’s stock of the week. EBR’s proprietary WiSE Technology is designed to eliminate the need for a lead to the left ventricle in Cardiac Re-synchronization Therapy (CRT), and the associated complications.
EBR aims to expand this technology into other applications in the $11 billion cardiac rhythm management market.
Power said the company’s Q1 FY22 results released this week were in line with expectations with operating cash outflows of ~US$6.8 million, mostly relating to clinical and regulatory costs, staff and prepaid expenses.
The company’s cash sits at US%70.4 million, with it well-funded to progress its clinical and commercial activities in preparation for US FDA approval next in 2HCY23.
Importantly, Power said its pivotal SOLVE trial remains on track with patient recruitment targeting completion by mid year.
Morgans views favourably the FDA’s recent allowance of commercially available leadless pacemakers as a co-implant in the SOLVE trial, to help patient recruitment but also expand the initial addressable market by US$400 million to US$2.5 billion in 2024.
“When they say they’ve finished recruitment is a good line in the sand and that’s coming before the end of June and I’m very sure it will pop on that news,” Power said.
Morgans has a 12-month target price of $1.84 on EBR, which is currently trading ~58 cents.