ScoPo’s Powerplays: Who’s staying afloat in the inflation storm?
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.
Here’s something for anyone who’s getting tired of watching and waiting for some action.
A bored Russian security guard on day one of a new job for a private firm contracted to the Yeltsin Centre in Ekaterinburg has been charged with vandalising a 20th-century painting after drawing eyes on its faceless figures.
Three Figures (1932-34) by the Russian avant-garde artist Anna Leporskaya was at the time on loan from the State Tretyakov Gallery in Moscow, when the guard allegedly drew eyes on two of the faces with a ballpoint pen. Fortunately, the painting, insured for ~RUB 74.9m (~AUD$1.4m) was able to be easily repaired.
There’s certainly been no boredom for Scott Power or investors watching the ASX markets and health stocks this week, with volatility continuing to play out.
Today, the five-day chart data shows the broader market is up 1.17% and the healthcare sector down ~2.02%.
The market rallied earlier in the week, boosted by strong corporate earnings reports but it hasn’t been good news to end the week.
Australians investors woke to news on Friday that the US Fed may hike rates 0.50% Fed as soon as March after headline inflation rose by 7.5% — the highest level in 40 years. Core inflation was up 6% with the market now six Fed rate hikes this year, or a 1.5% increase by year end.
All three major US stockmarket benchmarks fell sharply after the announcement, while the benchmark US 10-year yield shot up above 2%, and was trading at ~2.03%.
Of the big stocks which influence sector movements, medical devices company ResMed (ASX:RMD) saw its share price up 1.58% going into Friday to $34.10, recovering from lows after recent positive reporting.
Biotech CSL, which makes up a large part of the healthcare index, was down ~2.13% to $249.68 on no major news other than its plasma collection in the US could remain soft for some time due to the COVID-19 pandemic.
To good news, shares in audio and hearing-tech firm Audeara (ASX:AUA) were up ~12% during the past five days to 0.14 cents on the back of impressive quarterly results.
The company’s proprietary tech speaks directly with Cochlear implants and a wide range of hearing aids. Its A-01 headsets are designed to optimise communication and entertainment experience for those with or without hearing loss.
“It posted a very positive quarterly result and a conference call we’ve had with management suggest the outlook is very promising,” Power said.
“The CEO (James Fielding) has temporarily moved to the US to help build the distribution network over there.”
Last week’s Powerplay, cardiac-focused Silicon-Valley based EBR Systems (ASX:EBR), had a good week with its share price rising 11.27% to 79 cents.
“Their recruitment for their US trial in on track to finish mid-year so we think that is a huge milestone for them when that’s achieved,” Power said.
Clinuvel (ASX:CUV), which targets skin disorders with its SCENESSE drug, rose 3.19% in the past week to around $23.58.
Personal protective equipment provider (PPE) Ansell (ASX:ANN) recovered from a profit downgrade last week to be trading up 3.34% for the past week to ~26.59.
Nanosonics’ (ASX:NAN) price dropped 6.72% to $4.72 on revealed big changes to its North American sales model with GE Healthcare (GE).
Nanosonics has developed and commercialised the trophon EPR device, a unique automated disinfection technology, which was the first major innovation in disinfection for ultrasound probes in more than 20 years.
Until the expiry of its current agreement with GE in June 2022, Nanosonics will manage all inventory, ship, install and train new GE trophon customers. The strategy is part of Nanosonic’s strategy to move to a direct sales model.
“That really took us by surprise with the fact that it happened so quickly and it has left the FY22 numbers with a downgrade of between 13% and 16% in revenue for the year and slightly higher cost base which means a little better than a break even result for the year,” Power said.
“We remain positive on the stock and return to growth and margin improvement they talk about going direct to the customer may just take a little bit of time to materialise.”
While they’ve maintained a longer term Add recommendation for Nanosonics, they have pulled back their price target by $1 to $5.97 per share.
“They’ve caught the attention of investors, are backed by some good people, good science and doing some really interesting work,” Power said.
Power said all eyes will now be on reporting season over the next couple of weeks with a huge amount of financial reports due to be released.
“I think in healthcare we will see most of the companies post reasonably positive results,” he said.
Standing out for Power this week was Healius (ASX:HLS), currently trading at ~$4.45. Healius operates medical centres, pathology labs and diagnostic imaging centres. The company is benefiting from continued increased testing for COVID-19.
Morgan’s has an Add rating and target price of $5.79 for Healius.
Larger health imaging company Promedicus (ASX:PME) is also on Power’s radar with Morgans having an Add rating and 12-month target price of $54.49. Shares in the company are currently ~$46.43.
“It’s a structurally sound business delivering more contract growth and usually rallies at results,” Power said.
Power is also positive on fertility companies Virtus Health (ASX:VRT) and Monash IVF Group (ASX:MVF) with Medicare numbers showing more women looking to commence their IVF cycles now COVID-19 lockdowns and restrictions have eased.
Currently, there is a takeover bid for Virtus with the exclusivity period for Capvest Partners expiring later this month, with private equity company BGH Capital preparing to do battle for the company. Virtus is also due to release its latest results on February 22.
“Once the exclusivity period expires we’ll have two bidders deciding what they will do,” Power said.
“With the share price at around $7.34 the current bid price is almost 30 cents higher, plus they pay a nice dividend,” he said.