ScoPo’s Powerplays: These ASX health stocks are under the radar as market wallows

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.

Through the destruction of war in Ukraine have come positive stories about people helping each other during times of crisis. On Twitter a story has been trending this week on Polish mothers who have been leaving prams at train stations to help Ukraine refugee families who may need them upon arrival in the country.

Russia’s invasion of Ukraine, along with global inflationary pressures and forecasted interest rate hikes, continues to impact equity markets.  In the US figures released overnight showed the US consumer price index for February hit a new high of 7.9% year-over-year, the highest since in 40 years.

Gas, food and housing costs have all risen and are expected to hike further as the war in Ukraine continues to impact.

All of this has translated into not much love for ASX health sector stocks. At the start of trade on Friday morning, the health index was slightly up for the past five days at  ~.92% for the week, compared with the S&P/ASX 200 index down .28%.

However, as the morning progressed, the health index started to fall in line with the general market. Health stocks had dropped ~1.24% in morning trade to be down .36% at midday (AEST). The general market dipped .22% in the last morning session of the week to be ever so slightly in the green at ~.01%
 

Health stocks not in popular crowd

In what is a sign of the times, Power said health stocks are simply “out of favour” with investors favouring sectors more like resources.

“Broadly there’s been an under-investment in supply of new mines for many resources in recent years, coupled with economies coming out of lockdown and increasing demand you have scarcity driving commodity prices higher so now everyone is talking about resources,” he said.

“Sectors like healthcare have not been a focus for investors at the moment and  if you look at the small cap healthcare or life sciences sector there’s been significant downward pressure on prices.”

The slight boost in the ASX health index this week was led by heavyweight CSL (ASX:CSL), with its share price rising ~3.51% in the past five days to ~$264.

Power said CSL investors have had some good news of late with the company’s acquisition of Swiss biotech Vifor Pharma Ltd (SIX:VIFN) going through. There were reports this week its new generation of influenza vaccine had received regulatory approval for use in younger people.

Hearing solutions giant Cochlear (ASX:COH) saw its share price fall ~1.43% for the week on no  news while pathology provider Sonic Healthcare (ASX:SHL) was slightly up ~.96% to ~$33.64 also on no news.
 

Stocks Power is watching

Health imaging tech company Mach 7 (ASX:M7T) has rallied ~8.33% in the past five days to 78 cents. The company has recently reported a strong H1 FY22 result.

Morgans forecasts revenue of $14m and EBITDA of $1.2m for Mach 7, as the company continues to win contracts and moves into a growth phase.

“Mach 7 definitely offers value compared to some of their peers and we expect revenue growth of 20%  plus annually for at least the next three years,” Power said.

Virtus enters trading halt on takeover announcement

Power said the battle for fertility company Virtus Health (ASX:VRT) is heating up with it entering a trading halt on Friday. The exclusivity period for UK private equity firm Capvest Partners’ takeover bid has expired and it is now facing competition from BGH Capital.

Private equity player BGH capital has revised its takeover bid to ~$655 million for Virtus.

“It will be interesting to see how the takeover of Virtus plays out and I suspect we will get an announcement on that next week,” he said.

Another fertility company, Monash IVF Group (ASX:MVF), saw its price slightly up at .45% for the week to $1.10.

Power is a fan of Monash, which he has chosen in the past as a stock of the week. The company recently recorded adjusted NPAT of $13.4 million for H1 FY22, above guidance of $13 million.

“January monthly cycle numbers were down as expected following lockdowns from COVID-19 but they are expected to rebound in subsequent months,” Power said.
 

ScoPo’s Powerplays

Power’s stock of the week is small cap health imaging company Volpara (ASX:VHT), which specialises in the early detection of breast cancer.

Power said from an ESG perspective, Volpara is very attractive and ticking all the right boxes.

“There product is making a significant change to women’s health, they have a strong diversified board with a large female contingent and it’s a software-based business with a minimal carbon footprint,” he said.

Volpara continues to deliver strong growth reporting quarterly cash receipts of NZ$7 million for Q3 FY22, up ~50% year on year or ~56% on a currency-adjusted basis.  The company is on track to reach revenue guidance of $25 million for the year.

“They are moving towards profitability but haven’t provided guidance on that front but Morgans expects them to be cashflow breakeven within the next 18-24 months,” Power said.

The European Society of Breast Imaging (EUSOBI) has released new screening recommendations for women with extremely dense breast tissue. The recommendations follow findings from a research study (the DENSE trial) that used Volpara’s breast density software, Volpara Density.

EUSOBI now recommends that all European mammography providers offer breast MRI to women with extremely dense breasts, after considering the mounting evidence of the risks associated with extremely dense breast tissue and the results of the DENSE trial.

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