In a tough economy who do you call? Health stocks
Health & Biotech
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The healthcare sector might be in for some merger and acquisition action, as cashed-up companies in a low-growth economy look for ways to grow.
Morgans health analyst Scott Power says low interest rates combined with low economic growth and ASX100 companies with money to spend suggests the next 12 months might see a few smaller companies eaten.
He tapped Impedimed (ASX:IPD) as a possible target, saying it has interesting technology but cash is getting tight and the company is at an “inflection point”.
Impedimed makes devices that can tell how much and where the fluid is in your body, and what your body composition looks like.
This kind of technology is used in gyms as a more accurate measure than weight — and Impedimed has begun to look at this market — but it mainly targets medical issues such as finding small amounts of fluid after breast cancer treatments.
Cash at the end of March was $17m, with a quarterly burn rate of $4.9m and cash receipts coming in at just under $1m.
IVF provider Monash (ASX:MVF) was also on Power’s list, as is Visioneering (ASX:VTI), the multifocal contact lens company which just raised $11.1m to push into the US.
Aged care providers are also ”prime targets” to be mopped up by private equity firms.
Although aged care is a heavily regulated industry and currently enduring a Royal Commission inquisition, Power says Estia Health (ASX:EHE), Japara (ASX:JHC), Regis Healthcare (ASX:REG) and Aveo Group (ASX:AOG) are sitting on large asset and property portfolios that aren’t being factored into their share prices.
Health companies have a reputation for being stayers during economic slumps because people still get sick and old, although biotechs at the smaller end of the spectrum doing and needing to fund research are at risk of a capital crunch.
Last year the $487m cash takeover of Viralytics and the $1.87bn acquisition of Sirtex Medical were the standout health takeovers of 2018, and the most active buyer was Zenitas Healthcare which made 10 deals, according to the Dealtracker 2019 report by Grant Thornton.