ScoPo’s powerplays: Not panicking about bond yields, and seeing opportunity in Control Bionics
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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.
It’s been another tough five days for the healthcare sector, which fell every day except Monday to finish the week down 4.46 per cent, its worst weekly loss since mid-July.
The sector has now finished down four straight weeks and has lost ground 13 of the 15 last weeks as investors rotate out of high-growth stocks like tech and biotech and into more defensive and value stocks.
The big contributor to the index’s declines is, of course, blood products giant CSL (ASX:CSL), which at a market capitalisation of $113 billion is worth about the same as every other healthcare company in the sector put together.
Scott Power sees this as a buying opportunity — Morgans has a price target of $306.74 on CSL — and doesn’t believe that bond yields that caused jitters in equity markets the last two weeks will keep rising so sharply.
“Those Treasury yields are creating a little bit of uncertainty in the market, despite reasonably rapid vaccines being rolled out that will enable economies to economies to open up,” Power said.
Even without the vaccine rollout, coronavirus case numbers are likely going to drop anyway as the Northern Hemisphere moves into warmer weather, he adds.
So overall, the fundamentals are strong for healthcare companies, he says.
“Again, that theme of money being available for healthcare and life sciences companies continues,” Power said.
There was $633 million raised in 38 different transactions across the healthcare sector in the December quarter, he added.
ResApp (ASX:RAP) finished down 1.8 per cent to 5.4c despite announcing a three-month pilot trial of its cough diagnostic smartphone app across the telemedicine services of a large European Union telehealth provider called Medgate.
It’s just an unpaid trial at this stage, but Medgate provides 6,000 telehealth consults a day, and well over 25 per cent of GP appointments are for chest infection or cost-related.
At $5 a test, that could result in $1.65 million a year in revenue for ResApp, Morgans estimates.
“While these numbers assume full take-up across the MG network, we know from the Aus telehealth customers that reality takes a bit more time,” Morgans wrote in a research note.
“What it does do is raise a flag across MG’s EU competitors firstly that the technology exists, and importantly providing the external validation from one of the industry’s biggest players that they see it as a value-add to their consults.”
The announcement “isn’t a home run at this stage, but adds confidence in the technology and marketability within the telehealth space,” Morgans says.
The brokerage rates ResApp a speculative buy with a 13c price target.
Power’s “powerplay” pick for the week is Control Bionics (ASX:CBL), which debuted strongly on the ASX in December, with its share price doubling from its IPO price of 60c, but has drifted downwards since.
CBL shares finished this week down 4.3 per cent to 67c.
The company makes a portable wearable device that lets people with severe disabilities communicate via only a computer and neural signals.
The company posted a first-half loss of $1.1 million, which is better than the $2.1 million that Morgans had expected.
“So what the company has said is that they are cautiously optimistic about an improving second half,” said Power.
They have targeted entry into Japan, which looks promising, and have a new distribution agreement with a company in the United States to help them market their products more broadly.
“I think it’s a really good story,” Power said.
Morgans rates CBL as a speculative buy, with a price target of $1.42.
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