ScoPo’s Powerplays: Reporting season positive as ASX health stocks head in right direction

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.

• ASX health sector modestly up for the past five days as reporting season points to strong growth in year ahead
• Health imaging company announces “stellar” result including EBIT margin expansion to 67%, well above expectations
• Regenerative medical company Avita Medical and oncology play Telix Pharma  post disappointing results 

The joys of summer – barbies with family and friends, trips to the beach…..and itchy, annoying mosquito bites. No matter how hard we may try those pesky insects still manage to spoil the fun.

But according to new research published in the journal Cell, mozzies’ love affair with humans may all come down to how we smell. When female mosquitoes are looking for a human to bite, they smell a unique cocktail of body odours, stimulating receptors in their antennae.

And despite scientists killing off an entire family of odour-sensing receptors from the mosquito genome, they still found a way to bite us. The new research has found mozzie have evolved redundant fail-safes in their olfactory system.

In most animals, an olfactory neuron is only responsible for detecting one type of odour and if it’s broken then basically so is their sense of smell. But senior author of the research, Leslie Vosshall of Howard Hughes Medical Institute and a professor at Rockefeller University, and her colleagues found getting rid of a single receptor has no effect in mosquitoes, meaning they can always smell us humans.

“Any future attempts to control mosquitoes by repellents or anything else has to take into account how unbreakable their attraction is to us,” Vosshall said.

So that’s not really helpful at all, is it now?
 

To markets…good new for ASX health stocks

By 12.30pm (AEST) on Friday the S&P/ASX 200 healthcare index (ASX:XHJ) was modestly up 0.72% in the past five days, while the S&P/ASX 200 (ASX:XJO) index was up 1.18%.

Power said ASX health stocks remain in the thick of reporting season with positive signs companies are heading in the right direction.  Sleep disorder device company Resmed (ASX:RMD)  increased its Q4 revenue by 4% on pcp to $914.7 million.

“It was a good report and the most important aspect is they are talking about growth continuing to come through next year,” Power said.

Bloods product giant CSL (ASX:CSL), Australia’s largest healthcare company with a market capitalisation of ~$144 billion,  reported its FY22 results. Power said results were broadly in line with guidance. CSL reported an increase in revenue of 3%, while bottom line NPAT fell 6% to $2.255 billion for FY22, with the company declaring a full year dividend of $3.11 per share, up 6% on pcp.

“What they’re saying is we expect to grow our business next year so I guess the theme for the sector is the next 12 months is starting to look pretty good,” Power said.

“What we’ve seen from CSL and Resmed the trend is pretty positive commentary about growth prospects for FY23 which is setting healthcare up nicely.”
 

Pro Medicus reports ‘stellar result’

Health imaging company Pro Medicus (ASX:PME) has announced what Power described as a “stellar result” for FY22.

Power said the highlight was further EBIT margin expansion to 67% (+400 bps on pcp) which is well above expectations and highlight the operating level of the business.

NPAT was up 44% to $44.4 million, albeit below Morgan’s forecasts of $46.7 million due to higher taxation charges than forecast.

Revenues grew 38% to $93.5 million with 65% gains in transaction revenues, 5% gains in support fees and an 8% bump in professional service fees. Five-year contract values rose 31% to $420 million.

Morgans has lifted its 12-month target price for Pro Medicus to $58.18 from $56.20. The share price rose ~2.37% this week on the positive result to $54.10.

In June, Pro Medicus announced renewal of two contracts for a minimum value of a $47m.

“The result was in line with what the analysts were expecting and they’ve pointed to some very growth for next year,” Power said.

“Pro Medicus is one of the standout companies on the ASX across all sector in terms of the financial metrics they are pushing out and their growth profile.

“For the past 10 years they’ve really done an extraordinary job and continue to do an extraordinary job.”

Not all good news

But it hasn’t been all good news for ASX health companies during reporting season so far. Regenerative medical company Avita Medical (ASX:AVH) disappointed the market with its revenue down 17% to US$15.8 billion for six months.

Avita is working to advance the standard of care for burn patients with its novel technology platform, the RECELL skin graft system. Avita also reported topline results from its pivotal randomised, controlled trial evaluating the safety and effectiveness of its RECELL skin graft system fell short of requirements.

The company’s share price has fallen ~1.52% for the past five days to $1.95.

Oncology company Telix Pharma (ASX:TLX) announced a a net half-year loss of $70.9 million on revenue of $24 million. However Power remains optimistic for the company.

“It’s a pretty big net loss sitting there but that’s not the main game here as it’s about an early stage life science company building up a profile which they are doing very nicely,” he said.

The Telix share price is down ~14% for the week, which Power is also not too concerned about after a strong run.

“It’s had a big run in its share price so also a bit of profit taking coming through there,” he said.

ScoPo’s Powerplays – Monash IVF

Fertility company Monash IVF (ASX:MVF) is Power’s stock of the week, with the company due to provide its FY22 results next week. Morgans has a 12-month target price of $1.26 on the company.

Power said they have recently been strategic in acquiring IVF centres around Australia and he thinks there will be further consolidation in the IVF market, with Monash well placed to be part of the process.

“The first half of this year has seen the IVF cycle numbers a little below what we had last year but we think that will start to turn around as we continue to exit from the Covid-19 lockdowns,” he said.

“We think IVF cycle numbers will pick up in the second half of this year and into next year.”

The Monash share price is down ~2% for the week to $1.04/share.

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.