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Health & Biotech
Healthcare and life sciences expert Scott Power, who has been a senior analyst with Morgans Financial for 24 years, gives Stockhead readers his top tips for 2024.
After a volatile 2023, Scott Power expects 2024 to be a strong year for the healthcare sector as interest rates appear to be peaking.
“The healthcare sector has underperformed for the last two years, particularly at the smaller end, and valuations have just got too cheap,” he says.
“Since the beginning of November we have seen a swing back into the sector which we expect to continue into 2024.”
Power says good news from healthcare names has also helped swing the pendulum back in favour of the sector.
Among the positive news, market darling of 2023 Neuren Pharmaceuticals (ASX:NEU) has announced positive results of its Phase 2 results of NNZ-2591 in children with Phelan-McDermid syndrome (PMS).
Health imaging stock specialising in the early detection of breast cancer, Volpara Health Technologies (ASX:VHT), has received a takeover offer from South Korean company Lunit, Inc.
VHT has entered a scheme of implementation with Lunit, which earlier offered shareholders $1.15/share in cash, worth around $300 million.
Heading into 2024 Power has picked nine stocks to fill this year’s Christmas stockings that fit under five broad categories, including:
Stock rating: Add
12-month target Price: $5.90
Market cap: $484 million
Power says the regenerative medicine and wound care company reduced its FY23 guidance by ~5% to now 45-47% growth, which resulted in share price weakness.
“However, we view this as merely a timing issue, with longer sales cycles in the expanded indication of full thickness skin defects, but the opportunity is ~10x the existing burns market,” he says.
“We expect management will provide quarterly and full year guidance at its full year result in February.”
He says AVH is also awaiting approval for its automated device RECELL Go, which is due by the end of May and should result in a positive share price reaction if achieved.
Stock rating: Add
12-month target price: $1.54
Market cap: $188 million
Power sees a strong growth story for the health imaging stock across CY24 and expects several new contract wins, continued expansion of the pipeline with the contract renewal profile presenting an opportunity to renegotiate pricing for its viewer product.
M7T this month announced a renewed five-year subscription deal with Sentara Healthcare for its Enterprise Imaging Platform and eUnity Diagnostic Viewer.
The renewed contract holds a total minimum value of $10.2 million and is expected to generate Annual Recurring Revenue (ARR) of about $2.0 million.
“Strong moves toward M7T’s goal of covering its cost base with recurring income within the next few years will be well received by the market,” Power says.
Stock rating: Speculative buy
12-month target price: 22 cents
Market cap: $293 million
It’s been a volatile year for the Brisbane-based medical software technology company, including a board stoush following a capital raising and perceived risk to shareholder wealth.
But putting board and management upheaval with sweeping changes to leadership, Power see IPD as now ready to capitalise on inclusion in the US National Comprehensive Cancer Network (NCCN) of Bioimpedance Spectroscopy (BIS) as an objective measurement tool to identify early signs of lymphoedema.
IPD focuses on non-invasively measuring, monitoring, and managing fluid status and tissue composition using BIS medical technology with its SOZO device.
“We now see the company as well positioned to leverage the NCCN guidelines to generate meaningful sales of its SOZO device across the US hospital network,” Power says.
Stock rating: Add
12-month target price: $1.50
Market cap: $257 million
Power says the soft tissue repair company’s share price performance has been lacklustre over the past year, which it views as due largely to overall sentiment towards small caps, coupled with destocking of its distribution partner TELA Bio.
“With these issues largely in the rear window, we think ARX can hit its FY guidance and continue to grow at ~25% revenue, 88% margin and 20%+ EBITDA margin over the coming three years,” Power says.
In August ARX submitted a US FDA 510(k) application for Myriad Flow, a new Myriad product that could be commercialised in combination with the previously US FDA-cleared components of its Enivo system.
Stock rating: Add
12-month target price: $3.15
Market cap: $200 million
PBP is a manufacturer, packer and distributor of a range of prescription and over-the-counter (OTC) pharmaceuticals, complementary medicines and consumer health products.
“It’s share price has pulled back since its AGM, where it issued marginally softer first half guidance due to a near-term mix shift towards lower-margin manufacturing volumes,” Power says.
“We think the company is well positioned to deliver a solid second half step-up as this mix shifts towards higher-margin cold and flu volumes into winter, and as new contracts and manufacturing equipment comes online, with two of six new lines to be operational by December 2023, and the remaining equipment during H2 24.”
Stock rating: Add
12-month target price: $3.15
Market cap: $14.94 billion
Power believes pathology and radiology specialist reported a disappointing FY23 with revenue down by 13%, earnings before interest, tax, depreciation and amortisation (EBITDA) fell 40% to $1.7 billion and NPAT declined by 53% to $685 million.
SHL cited a decline in Covid-19 testing revenue as the major factor for the year’s sluggish performance.
“We believe Sonic has turned the corner on the pandemic and is in a strong position, with solid base business growth and accelerating cost outs, along with ample liquidity for capital management and M&A,” Power says.
Stock rating: Add
12-month target price: $32.74
Market cap: $37.59 billion
The leader in obstructive sleep apnoea (OSA) and other sleep-related respiratory disorders has seen its share price fall significantly due to investor angst around the potential impact of weight loss drugs, namely GLP-1s in curtailing the core OSA addressable market.
“We believe talk of an emerging weight loss drug ‘revolution’ should not be feared as an existential threat, but instead as a unique opportunity to buy a quality global franchise at a discounted price,” Power says.
Antisense Therapeutics (ASX:ANP)
Stock rating: Speculative buy
12-month target price: 23 cents
Market cap: $50.48 million
The biopharmaceutical firm is focused on advancing innovative antisense therapeutics for a range of conditions Duchenne Muscular Dystrophy (DMD), Multiple Sclerosis (MS), and Acromegaly.
Power says 2024 catalysts for ANP include recruitment milestones and toxicology studies.
“The major catalyst remains the outcome of Phase 2b trial into Duchenne muscular dystrophy which is expected around the third quarter of CY24 with success likely to drive partnering discussions,” he says.
Proteomics International Laboratories (ASX:PIQ)
Stock rating: Speculative Buy
12-month target price: $2.42
Market cap: $96.64 million
PIQ operates at the forefront of predictive diagnostics and bio-analytical services and specialises in the area of proteomics – the industrial scale study of the structure and function of proteins.
The company has developed PromarkerD, which is a blood test designed to predict the risk of developing diabetic kidney disease (DKD), or progression of DKD in patients with type-2 diabetes.
“CY24 is driven by several major catalysts including first US sales, private payor onboarding, pipeline development, and ex-US commercial engagement,” Power says.
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.
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Disclosure: The author held shares in Mach 7, ResMed and Sonic Healthcare at the time of writing this article.
Health & Biotech
Health & Biotech
Health & Biotech
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