ScoPo’s health powerplays: Getting our elective surgery (back) on
Health & Biotech
Health & Biotech
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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.
Quarterlies, a dash for cash and, most importantly, the federal government’s green light for some elective surgeries to restart on Monday were the three issues taking ASX companies by storm this week.
“The resumption of a fair bit of elective surgery, that is the main topic from the COVID-19 side of things. Clearly the government is pretty happy with the way Australia has handled the pandemic and as a result, is bringing back certain elective surgeries much quicker than anyone anticipated,” Power said.
“Our mid-case was June 1 and worst case September 30, so we’re probably 10 weeks ahead of that.”
That gave a positive spin to private hospital operator Ramsay Healthcare (ASX:RHC), as it can now restart the most profitable part of its business, and for pathology providers Healius (ASX:HLS) and Sonic Healthcare (ASX:SHL), which have been suffering from a steep drop in people getting routine tests done out of fear of infection.
To the joy of prospective parents, and Virtus (ASX:VRT) and Monash IVF Group (ASX:MVF), the government made particular mention of IVF providers, saying they will be among the first elective surgery operators to open.
The other theme that is running at the moment is one that will run for another few weeks: companies are racing to shore up their balance sheets.
“On Wednesday we saw Ramsay raise an extraordinary amount of money, $1.4bn. That was a raising they didn’t necessarily need to do but it’s all about making your balance sheet bulletproof for what might have happened over the next months,” Power said.
The third theme is that we’re in the middle of March quarterly reporting season.
“On a positive note we have Volpara (ASX:VHT) and Mach7 (ASX:M7T), who are saying we’ve had a pretty good time until end-March, but on the negative we’re seeing the decision processes for software and device sales take a bit longer,” Power said.
Telemedicine companies — the provision of medicine as opposed to health services like GP consults via phone or video call — are telling investors in their quarterlies that once the COVID-19 crisis peaks business will start returning reasonably quickly.
“People can only put off mammograms and radiology services for so long.”
In terms of pent up demand, Power says Micro-X (ASX:MX1) has timed its run perfectly.
Micro-X manufactures a mobile lightweight x-ray machine that weighs 90kg (the current rival ‘mobile’ x-ray machines weigh 500kg) and has in the last few months secured a number of orders from Australian and Asian health authorities.
Power’s favourite side of the story is that it is manufacturing high-tech medical equipment in Australia and exporting it, a detail that plays beautifully into the federal government’s narrative about setting up local supply chains.
“It’s basically a big lump of metal on wheels. Imagine wheeling a 90kg device around an emergency department or from ward to ward, so it’s an attractive position,” Power said.
The negative side is in drug development, where the broad theme across most companies is that clinical trials are on hold.
Right now, the private hospital sector and its ancillary services and telemedicine and telehealth are in favour, and anything that requires non-urgent care has fallen steeply from grace.
He views anything that requires face-to-face care such as GP services, and their ancillary services such as smaller radiology groups, as still struggling.
“The hot stocks are those that are going to have to raise. What we’re finding is the raise prices are at a pretty hefty discount to their last traded price,” Power said.
Cough-diagnosing app maker ResApp’s quarterly report for March has to be out next week, to meet the ASX’s deadline, and Power says this could be something to watch for.
“The negative is they haven’t been able to get US FDA clearance. The FDA will want more trial work, which looks too hard to me.
“The positive is they have adult and child approval for Europe and Australia… I’m hearing that 2020 is the year for inking deals.”