Volpara's strategy of chasing larger 'elephant' clients is working. Pic: Getty Images
ScoPo’s (he’s back) Powerplays: ASX health stocks fall, Volpara ‘elephants’ strategy pays off
Health & Biotech
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- ASX health stocks fall 0.8% in the past five days in line with broader markets following latest rate hike
- Investors rewarding health stocks with near term catalysts in 2023, including Neuren and Impedimed
- Health imaging stock Volpara records second consecutive quarter of positive net operating cashflow
Healthcare and life sciences expert Scott Power, who has been a senior analyst with Morgans Financial for 26 years, is back after a holiday to explain what the movers and shakers have been doing in health and gives his ASX Powerplay.
What exercise have you done today? Walked around your neighbourhood? How about gone for a run or made some sick gainz at the gym?
Yoga? Pilates? A cool autumn swim?
The benefits of exercise have long been known but new research published in Neuroscience shows that it positively affects health even if started later in life.
Exercise has previously been found to support brain health in part by enhancing hippocampal function, which is part of the brain that plays a crucial role in memory formation and spatial navigation. Additionally, the hippocampus is also thought to be involved in emotional regulation, stress response, and the formation of new neurons through a process called neurogenesis.
The leading hypothesis is that muscles release factors when they contract, such as lactate, myokines and growth factors that enter circulation and reach the brain where they enhance plasticity but just how remained unclear.
In the latest research scientists established an in vitro model to understand how exercise alters hippocampal cells. The researchers discovered that the chemical signals released by contracting muscle cells stimulated the growth and increased the electrical signalling of hippocampal cells.
Furthermore, they determined that astrocytes, which are supportive cells in the brain, play a role in regulating neuronal growth and activity to promote optimal brain function.
To markets….
The ASX health sector could do with functioning a little more optimally this week. At 12.30pm (AEST) on Friday the S&P/ASX 200 healthcare index (ASX:XHJ) was down 0.8% for the past five days in line with broader markets. The benchmark S&P/ASX 200 (ASX:XJO) fell 1.20% for the same period as investors reacted to the Reserve Bank of Australia (RBA) raising rates for the 11th time in the past 12 months.
The cash rate went up by another 25 basis points to 3.85% following the RBA’s May board meeting on Tuesday as the central bank works to contain sticky inflation with latest Australian Bureau of Statistics figures showing it is now at 7% for the year to March, still well beyond the central bank’s 2-3% target.
“In terms of theme for the week I think we’re seeing macroeconomic factors are dominating the market but in healthcare, companies with near-term catalysts are being watched very carefully,” Power said.
He said examples of this include Neuren Pharmaceuticals (ASX:NEU) which announced in April that its drug DAYBUE (trofinetide) is now officially available for the treatment of Rett syndrome in adult and children (2 years of age and older) in the US following FDA approval. NEU has risen ~60% YTD.
Other companies like Impedimed (ASX: IPD) have also had game-changing catalysts. IPD has been on the rise since the US National Comprehensive Cancer Network (NCCN) released a new set of guidelines, which include the use of bioimpedance spectroscopy (BIS) as an objective measurement tool to identify early signs of lymphoedema for the first time.
IPD currently holds the only FDA-cleared BIS technology for the assessment of lymphoedema.
Power said upcoming catalysts include predictive diagnostics and bio-analytical services Proteomic International (ASX:PIQ), which is expected to formalise a deal with Sonic Healthcare (ASX:SHL) to use the PIQ PromarkerD test for diabetic kidney disease in their US labs.
He said the company with closest near-term catalyst is probably Iain Wilkie’s stock of the week, medical device company EBR Systems (ASX:EBR).
EBR, which is developing the world’s first and only inside-the-heart system for heart failure, is due to release results of its pivotal SOLVE-CRT (SOLVE) trial at Heart Rhythm 2023, which will be held in New Orleans in the US later this month.
As such, EBR expects to make an announcement on the data and hold a webinar to discuss the data and results, on Monday, 22 May 2023 (AEST).
“We are confident it will be positive but it is a blinded study and until we actually get the results we don’t know for sure,” he said.
“When Iain put it in as stock of the week it was 61 cents and now it’s up to 83 cents so that was a terrific call.”
The NEU, IPD, PIQ, SHL & EBR share price today:
Ramsay Healthcare falls after Q3 FY23 results
Private hospital operator Ramsay Healthcare (ASX:RHC) has tumbled ~7% this week after announcing its Q3 FY23 results.
RHC said that momentum in surgical volumes has returned following a slower December/January period. For the nine months ended March, RHC booked a profit before tax of $414 million down from $416.7 million a year ago.
The company said its productivity is improving as disruption declines and workforce pressures start to ease, but investment in recruitment and retention remains a priority.
Payor discussions continue as inflationary pressures persist. RHC said it continues to expect a gradual recovery in earnings through FY23 and more normalised conditions in FY24.
“The cost base is still elevated and the markets have marked RHC down,” Power said.
Morgans maintains an Add rating on RHC but has downgraded its 12-month price target from $77.56 to $75.57.
Volpara records another positive quarter
Volpara Health Technologies (ASX:VHT) has reported a solid Q4 FY23 result, which Power said was slightly ahead of expectations, marking the second consecutive quarter of positive net operating cashflow.
VHT recorded cash receipts of NZ$10 million, which was up 25% on pcp. Net operating and investing cash outflow in Q4 FY23 was NZ $200k, an improvement of 92% from a net outflow of NZ$2.9M in Q4 FY22.
Cash receipts from customers in FY23 are NZ$38.6M (unaudited), up over 35% on FY22.
Net operating cash inflow was NZ $400k, marking the second consecutive quarter of positive net operating cashflow and well ahead of guidance for the first positive cashflow quarter in Q4 FY24.
“Management anticipates cashflow profitability in FY25, although noted on the conference call they see themselves as ~6 months ahead of schedule,” Power said.
The medical imaging stock specialises in the early detection of breast cancer. Over the past 12 months, under the guidance of new CEO Teri Thomas, VHT has increased the number of larger ‘elephant’ clients from 10 to 20, increasing average revenue per account in line with its revised strategy to target higher value, and more profitable products and clients.
Morgans has made no changes to its VHT forecasts, add rating or 12-month target price of $1.21.
“They are really delivering well ahead under the new CEO Teri Thomas, who started last April” Power said.
“She talked about turning the company to focus on profitability, bigger customers and reducing the cost base and she has exceeded expectations on all those fronts.”
MicroX announces new CEO
Cold cathode X-ray technology company MicroX’s (ASX: MX1) founder and CEO/MD Peter Rowland has announced his retirement, with the current CFO Kingsley Hall being promoted to the CEO role.
Power said internal promotions have been made to strengthen the leadership team with Brian Gonzales being promoted to CEO of Americas and chief scientific officer and Anthony Sheats being promoted to COO.
Rowland will remain on as a non-executive director until the November AGM to provide a smooth transition. MX1 produces a range of range of portable X-ray systems, most commonly used in healthcare applications such as aged care homes and military or humanitarian field hospitals.
The new CEO has said the strength of MX1’s engineering, development and manufacturing teams allows her immediate focus to be on driving further commercial returns from its technology, including a successful commercial launch of its bomb detection Argus X-ray camera by mid-2023 and addressing sales and profitability in its Mobile DR Division.
The company is also looking to advance its airport checkpoint products to more commercial readiness once they deliver working prototypes to the TSA this year.
Morgans downgrades Nanosonics after solid run
Power said Morgans has downgraded heavily shorted infection prevention company Nanosonics (ASX:NAN), which is up more than 26% year to date, from an Add to a Hold.
NAN has successfully developed and commercialised its trademarked trophon EPR device, a unique automated disinfection technology, which was the first major innovation in disinfection for ultrasound probes in more than 20 years.
Morgans has a 12-month price target of $5.24 on NAN.
“It has run through our price target,” Power said.
“We do like the company a lot but it has had a pretty good run and we’re just conscious of taking a little bit off the table when some of these companies hit our price target.”
The RHC, VHT, MX1, NAN share price today:
ScoPo’s Powerplay – Mach 7
Health imaging company health imaging company Mach7 (ASX:M7T) is Power’s stock of the week after posting its Q3 FY23 cashflow report with sales orders of $11.3 million, up 156% on pcp, cash receipts of $5.4m and net operating cash outflow of $1.3 million.
New sales orders for the quarter comprise of $6.2 million in recurring contracts, ~55% of sales orders, $3.6 million capital sales, and $1.5 million in professional services. Annual recurring revenue is $17.2 million an increase of 4.9% QoQ.
Sales orders YTD are sitting at $37.1 million, up 57% and above full year guidance of $36 million. Power said M7T is clearly showing strong sales traction in the market.
“There third quarter result was a little soft however the big news from them is their sales order book and what they have coming out in the future is exceeding expectations and we expect a strong fourth quarter,” he said.
Morgans has an Add rating on M7T with a 12-month target price of $1.34.
The M7T share price today:
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