ScoPo’s powerplays: Market hit by profit-taking, but healthcare outperforms
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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.
Healthcare lost ground for the ninth week out of the last 10, but at least this time it outperformed the broader market.
The ASX healthcare index finished the week down 0.95 per cent, while the All Ordinaries declined 2.94 per cent after three straight days of losses.
Power said that investors were taking profits after getting spooked by the selloff in the US Wednesday night/Thursday morning.
“The market’s taking a breather, and the smaller, more speculative stocks are certainly coming under pressure,” he told Stockhead on Thursday.
“But as we’ve highlighted, it’s the good quality ones like the Volparas and Impedimeds that have posted good results that the share prices are holding up. And Mach7, that share price as has done well.”
Mach7 Technologies (ASX:M7T) finished the week up 7.9 per cent to $1.435 after the enterprise imaging company announced a $7.9 million, five-year deal with a US hospital chain, Adventist Health/West.
“They won a really nice contract,” Power said. “That was very good news for them. … That’s one of the emerging-type companies that are of great interest to us.”
Volpara Health Technologies (ASX:VHT) was actually lost ground for the week after its shares were placed in a trading halt before trading opened Friday in connection with an acquisition.
VHT shares closed Thursday at $1.485, a 1.7 per cent decline since the start of the week.
But this week was the first losing week in six for the Kiwi breast-density company, whose shares were trading around $1.30 in mid-December.
Morgans maintained its add recommendation on Volpara after the company announced “solid” quarterly cashflow figures on Thursday, but cut its target price to $1.70 from $1.71.
“Traditionally, their third quarter is solid, and Volpara did not disappoint,” Power said. Recurring revenue was up 20 per cent from the previous corresponding period, he said. (Volpara ends its fiscal year in March, so the December quarter is its third quarter).
Brisbane bioimpedance device-maker Impedimed (ASX:IPD) finished the week down 4.2 per cent to 11.5c after announcing it second-quarter revenue of $2.1 million, up 40 per cent year-on-year.
“They’ve got a good cash balance of around $19 million, they’re increasing their number of tests, they did around 28,000 tests during the quarter, and of interest to investors, they have a number of major milestones over the next two quarters.”
Results of the seven-year PREVENT study evaluating bioimpedance spectroscopy technology to prevent lymphedema (limb swelling) in breast cancer patients through early detection is complete and a manuscript should be submitted next month, Impedimed says.
Positive results could be a key catalyst for the company as health care payers could get on board, Power said.
Swift Media (SW1) declined 2.4 per cent for the week to 4.1c after the closed-loop entertainment company announced positive cashflow of just under $2 million for the quarter.
“Their share price is stable at the moment,” Power told Stockhead on Thursday. “That’s a good outcome in this sort of sloppy market.”
The media company is expanding into aged care from its core business of providing programming to mining camps, Power said.
ResMed (ASX:RMD) declined 2.4 per cent for the week to $27.22 despite the respiratory products company beating expectations with $US800 million ($1 billion) in quarterly revenue.
Its US39c dividend was in line with Morgans’ estimate but below consensus expectations of 40c.
Morgans has a buy rating on ResMed with a $30.99 price target.
Telix Pharmaceuticals (ASX:TLX) declined 13.3 per cent for the week to $3.93 despite announcing the first patients had been dosed in a phase 3 trial of its renal cancer diagnostic imaging product.
“That’s a very good milestone for them,” Power said. “A lot of profit-taking through at the moment.”
Aroa Biosurgery (ASX:ARX) declined 0.5 for the week $1.11 after the Kiwi sheep-gut wound care company announced cash receipts for the quarter of $NZ6 million.
“That’s up from the previous quarter, which was just over $4 million, so they’ve shown good improvement in sales,” Power said.
Also, capital raisings continued this week, with Cyclopharm (ASX:CYC) completing a $30 million placement at a 4.1 per cent discount to fund its expansion in the United States. Cyclopharm will use the funds to supply US hospitals with its Technegas lung imaging generators for free to gain rapid market penetration.
“That shows there’s still plenty of money out there,” Power said. “That’s always a good story.”
CYC shares closed at $2.98, up 1.4 per cent for the week.
With most companies having released their quarterly results, Morgans’ focus now turns to first-half results – and Power is expecting the ASX’s two fertility companies, Virtus Health (ASX:VRT) and Monash IVF (ASX:MVF), to do well
“We think both are going to produce very good first-half results,” Power said.
“You not only got capital growth coming through in profits, but you’ve also got a return to paying dividends, so that will appeal.
VRT shares finished the week up 6.3 per cent to $5.74; Morgans has a $5.82 price target on them. MVF shares closed up 4.9 per cent to 75.5c; Morgans’ target is 84c.
For Stockhead’s more conservative readers, Power said CSL (ASX:CSL) is “looking really interesting” at these levels. (CSL shares were around $266 when we talked to Power, but closed Friday at $271.72 – still well below Morgan’s price target of $306.
The blood products giant faces the headwind of a weaker US dollar, “but that sort of share price is really looking very tempting for portfolio investors.”
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.