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ScoPo’s Powerplays: All looking good on the ground for ASX health stocks
Health & Biotech
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- ASX health stocks are up for the week with Power confident of a much needed end of year rally
- Power said signs from recent AGM and financial updates from various ASX health companies is reassuring
- Monash IVF jumps ~12% on solid H1 FY23 guidance and mounting takeover speculation
Healthcare and life sciences expert Scott Power, who has been a senior analyst with Morgans Financial for 26 years, explains what the movers and shakers have been doing in health and gives his ASX Powerplays.
Some good news for tomato producers and sellers this week. A new study has found eating tomatoes may improve gut microbiome.
Researchers fed piglets a tomato-supplemented diet for 14 days and found that the balance of their gut bacteria shifted toward a healthier, more favourable profile.
The results were published in Microbiology Spectrum. The researchers used 20 male piglets at the Ohio State University Swine Facility. After they were weaned from their sows, they were fed a basal diet for one week.
Next, researchers randomly assigned 10 piglets to a tomato diet consisting of freeze-dried tomato powder added to the basal diet.
The remaining 10 piglets received the control diet, consisting of the basal diet modified to match the tomato diet’s sugar, fibre, and other macronutrient content.
The researchers analysed faecal samples from all the pigs at the start of the experiment, 7 days in, and then again after 14 days.
Using DNA shotgun genomics the researchers identified the bacteria present at each point.
Sequencing detected a shift after 14 days in the ratio of Bacillota (bad bacteria) toward Bacteroidota (good bacteria).
The tomato-fed pigs also acquired greater diversity in their gut microbial community, believed to be a signifier of stronger gut health.
The study was done in pigs because their gastrointestinal tract is more similar than rodents’ to the human GI system.
Ohio State University Department of Food Science and Technology assistant professor and lead study author Dr Jessica Cooperstone told Ohio State News to really understand the mechanisms, more of research in the long term is needed in humans.
“A better understanding could lead to more evidence-based dietary recommendations for long-term health,” she said.
To markets…
And ASX health care continue to look healthier. By 1pm (AEDT) on Friday the S&P/ASX 200 healthcare index (ASX:XHJ) was up 2.7% in the past five days, while the S&P/ASX 200 (ASX:XJO) rose 2.9%.
Power said he has been reassured by positive AGMs and site visits by his colleagues to various ASX health companies.
“What we’re hearing at these AGMs and from these site visits is on the ground where it really matters things are looking prettyy good,” he said.
“At a higher level you have the economists and politicians talking about interest rates and inflation but what is actually important is who is doing the buying and selling of in our case medical products or services.
“We are taking a fair bit of confidence that things on the ground are looking pretty good and that is the theme for the week.”
Morgans puts a hold on Nanosonics
Morgans has downgraded Nanosonics (ASX:NAN) from an add to a hold after the company has had a good run in the past month and ran through its 12-month price target of $4.91/share.
Nanosonics today held its AGM, where CEO and President Michael Kavanagh said the first four months of the financial year had seen the business perform well across all regions against its FY23 objectives.
“Market conditions have improved in all our key markets with customer access and procedure volumes getting back to pre-Covid levels,” he said in his address.
Total revenue of $52.6 million was up 42% compared with pcp (36% in constant currency). Capital revenue was up 63% compared with pcp (55% in constant currency).
“If we annualise this revenue it comes in at $157.8 million which is above the guidance range of A$144m to A$150m and ahead of consensus at A$150.6m and Morgans at A$151.5m, so it is fair to assume consensus forecasts look achievable,” Power said.
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.
“Nanosonics has had a really good run in recent times,” Power said.
“Given the strong share price run, NAN is now trading within 10% of our target price and we move back to hold from add.”
Monash IVF jumps ~12% as takeover speculation mounts
Power’s Powerplay for last week fertility company Monash IVF (ASX:MVF) has seen its share price rise ~12% this week after a solid H1 FY23 guidance and media reports an offshore buyer may be interested in buying the company.
The Australian reported “an offshore buyer is understood to be circling Monash IVF”. As the Oz reported it has been a busy year for parties interested in Australia’s IVF sector.
In June, Virtus Health (ASX:VRT) announced the battle for the company had ended with Melbourne-based BGH to take control for $8.15/share or close to $700 million. London-based equity firm CapVest withdrew its offer after BGH gained the upper hand.
“The headline was ‘Monash IVF fertile ground for potential suitors’ and we wouldn’t disagree with that a they’re doing very well, taking market share and there’s good structural tailwinds,” he said.
“You’ve got corporations looking to do more for their employees in terms of collecting eggs, same sex couples, male infertility which we are hearing more about so fertility is increasingly becoming an issue which puts Monash in a good position.”
Sonic revenue declines as covid testing slows
Diagnostic services giant Sonic Healthcare (ASX:SHL) held its AGM on Thursday.
Power said as expected, FY23 trading through October was negatively impacted by slowing covid-19 testing, with revenues down ~12%, profit down ~37% and OPM contracting 930bp to 22.8%.
Covid-19 testing revenue declined ~65% on the pcp, but was up ~3.5% month-on-month in Oct as new waves present, with ongoing revenue expected to be “significant”.
Normalised base business revenue increased ~3.5% on the pcp (~8% versus pre-pandemic levels), but were similar to 2H FY21/1H FY22 gains, with growth expected to accelerate as underlying growth drivers are unchanged.
Power said while the flagging of a preferred bidder status for a 15-year UK NHS laboratory contract offers upside to Morgan’s estimates, the lack of FY23 guidance continues to reflect the pandemic’s uncertain trajectory and impost on profitability until a ‘new normal’ is established.
“Sonic remains in a strong position given its balance sheet with ample liquidity for capital management and M&A, the inevitable slowing of covid testing will place pressure on profitability until a new normal is established,” Power said.
Morgans has adjusted its FY23-25 estimates, with its target price falling to $34.77 and a hold.
Mach7 share price rallies on strong FY23 forecast
Health imaging company Mach 7 Technologies (ASX:M7T) held its AGM this week and provided a positive FY23 guidance to investors.
M7T is targeting FY23 sales orders of at least $36 million, up 8% on FY22 with revenue guidance up 20% on FY22 of $27.1 million.
The company reported staggered capital deals and sales order visibility bridges gap from CARR of $17.9 million and ARR run rate of $15.5 million at September 30, 2022.
Revenue and cashflow remain lumpy with timing of deal flow maybe seeing sales orders weighted to 2H FY23.
The M7T share price is up more than 3.6% in the past five days.
MVF, SHL, M7T share price today:
ScoPo’s Powerplay: EBOS rallies
Power said a Morgan’s analyst this week visited the Melbourne distribution facility of EBOS (ASX:EBO), while the company recently reported revenue of ~A$3 billion and underlying EBITDA of ~$142m for Q1 FY23.
The pharmaceutical distribution group continues to achieve double-digit revenue growth on FY22 with management noting the ongoing effects of Covid-19 which impacted the business both positively and negatively during the quarter.
Positives included a demand for Covid-related products creating increased foot traffic into pharmacies, growth in consumer logistics services as well as demand for pet products.
Some negatives include reduced hospital elective surgeries which impact demand for the medical device segment, as well as inefficiencies due to labour, supply, freight costs and constraints.
Meanwhile EBOS is also continuing to leverage the growing trend towards humanisation of pets through their animal care segment.
The company has opened a new pet manufacturing facility in Parkes (NSW) and has launched a new range of Black Hawk treats and puppy food products.
“They also expect to increase the number of Terry White pharmacies to around 700 in the next three years with it now sitting at around 500,” Power said.
“The goal is to have 90% of Australians within 10 minutes of a Terry White pharmacy so they will continue to take market share and are in a very good position.”
Morgans has upgrade EBO from a hold to add and lifted its 12-month share price to $36.84.
“It’s such a good portfolio stock,” Power said.
