ScoPo's Powerplays: ASX health stocks flat in 'ocean with no breeze'

ASX health stocks flat for week in line while broader markets rise of 0.5%
Nanosonics has risen ~17% in the past five days on its FY24 result
Mach7 falls falls as investing in growth plans push out profit expectations

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 Powerplay.

Australia has a long history of medical research and innovation with health science research in Australia ranked seventh globally. As part of our weekly ScoPo column we’ve decided to showcase groundbreaking Aussie medical research.

GPs may soon be able to screen their patients for Alzheimer’s with Monash University developing the first-of-a-kind finger-prick blood test with “needle-in-a hay-stack” precision to detect the hallmark biomarkers before symptoms progress.

The test uses world-first patented sensor technology, which can detect ultra low concentrations of disease markers in blood in minutes.

With the number of Australians diagnosed with dementia set to double by 2054, the quick blood test could become a vital tool to streamline diagnoses by giving GPs unprecedented access to non-invasive diagnostics.

Associate Professor Sudha Mokkapati from Monash Materials Science and Engineering developed the proof-of-concept electronic sensor for point-of-care testing, removing the need for laboratory-based pathology tests, and making the process to diagnosis faster and more cost-effective.

“It’s simple to use, low-cost and portable so it could be made widely accessible to GPs to screen patients right at the point-of-care. Detecting very early disease in large populations could dramatically change the trajectory of this burdening disease for many patients, and shave millions off associated healthcare costs,” Associate Professor Mokkapati said.

“We’ve completed testing that shows the technology is highly advanced by design and capable of detecting ultra low levels of several disease biomarkers in blood.”

“The next stage is to undertake the clinical validation needed to bring this a step closer to reality, and we’re reliant on further funding to progress this.”

Key collaborator Associate Professor Matthew Pase, at Monash’s School of Psychological Sciences, said the device may facilitate earlier, more efficient diagnosis, enabling timely intervention and management of Alzheimer’s.

“Most patients with neurodegenerative disease are typically diagnosed at advanced stages. Sadly, treatments targeting late-onset disease provide limited therapeutic benefit,” Professor Pase said.

“Earlier screening could change the outlook for many patients diagnosed with cognitive impairment, increasing the chance of halting or slowing symptom development and the rapid progression of the disease.”

To markets…

And ASX healthcare stocks could do with some better screening this week. At 12.15pm (AEST) on Friday the S&P/ASX 200 Healthcare index (ASX:XHJ) was flat for the past five days, while the benchmark S&P/ASX 200 (ASX:XJO) was up about 0.5%.

“The wind is certainly out of the sail,” Power said.

“I said to my colleague this morning I feel like I’m on a sailing boat in the middle of the ocean with no breeze and there is no wind in the sail so we’re just bobbing around.”

Meanwhile, it’s been yet another busy week of reporting season for the ASX Healthcare sector.

Ramsay falls on FY24 result

Australia’s largest private hospital operator Ramsay Health Care (ASX:RHC) fell ~7% on Friday after releasing its full year results, which were largely in line with forecasts.

RHC recorded a net profit of $888.7m, up from $298.1m a year earlier, which included the $618m sale of its stake in Ramsay Sime Darby (RSD), which owns hospitals in Malaysia and Indonesia.

In a note to clients Morgans analyst Derek Jellinek wrote that FY24 underlying profit came in a bit better than the top end of guidance, with net profit $300m up 20% on FY23 (guided $293-299m).

RHC declared a final dividend of 40 cents/share. The RHC full-year dividend totalled 80 cents, up from 75 cents a year ago.

In an ASX announcement CEO and managing director Craig McNally said margin recovery has been slowed by the significant cost inflation impacting the private hospital industry over the last few years.

“Wage inflation exceeding expectations remains a critical risk,” he said.

“Patient activity is forecast to grow in FY25, albeit the rate of growth is expected to be slower than in FY24.

McNally said he expected NPAT from continuing operations to increase.

“Margin recovery will be impacted by further investment in business enablement, particularly in digital and data programs in Australia, and the ongoing gap between wage inflation and tariff indexation most notably in the UK and Europe.”

Morgans has an add rating and 12-month target price of $56.54 for RHC.

Nanosonics lifts on FY24 result

Power said the positive share price for the week was for disinfection device maker NAN, which lifted ~14% in the past five days on its FY24 result and was in line with expectations.

Sales revenue was up 2% to $170m, the company saw total installed base growth of 7% (2,340 units) to 34,790 units globally in FY24, while recurring revenue was up 9% to $121.8m.

NAN reported gross profit margin of 77.9% in FY24 slightly down from 78.7% in FY23, which in a note to client Morgans’ analyst Iain Wilke said reflected the change in sales mix over the year and wound-down manufacturing rate.

“FY24 results were largely known given NAN’s recent trading update so focus was on guidance, Coris updates, and signs of hospital capital budget pressures,” he wrote.

Coris is NAN’s newest device intended for flexible probes commonly used in procedures such as colonoscopies, gastroscopies, enteroscopies, endoscopic ultrasounds and bronchoscopies.

The company filed a de novo regulatory submission for Coris in April and is forecasting approval within about a year.

“While NAN has made it clear capital budget pressures remain, a modest bounce back in capital sales in H2 and positive commentary suggesting more optimism into FY25 on new sales pipeline has reignited interest in the stock,” Wilkie said.

“Likewise, FY25 guidance looks achievable, and we would expect upgrades to roll through across the year if and when the pressures abate.”

Morgans made no change to its valuation with an add rating and 12-month target price of $3.75 maintained.

What happened with Mach 7?

Power’s pick of the week last week, Mach7 Technologies (ASX:M7T), did not perform as expected after the release of its FY24 results with the share price down ~7% in the past five days.

The health imaging stock FY24 result was broadly in line with expectations. Wilkie wrote in a note to clients the recurring sales book now provided significantly better visibility into cashflows.

Revenue for the year was up 23% on pcp to $29.1m (Morgans forecast $28.3m), which comprised of recurring revenue of $21.2m and capital revenue of $4m and professional services revenue of $4.1m.

The company achieved a record sales order book, up 52% with ARR covering 72% of its operational costs.

FY25 guidance was for a 15-25% revenue and CARR growth, and lower operating expenses than revenue growth.

“The notable omission in outlook was around operating cashflow positivity, which likely ties in with an acceleration of product development,” Wilkie wrote.

Power said the company is going to invest further in product innovation and additional staffing to the value of $2-3m, which pushes out their profit expectations.

“They’re investing for the right reason, which in the short term will impact its path to profitability and push it out for 12 months,” he said.

“The market is looking for that path to profitability and the market is cyclical and if we get a cut in US interest rates you’ll see a swing quickly back to the riskier assets and companies not quite profitable will get a bit of a bump.

“Operationally it is going well and they’re doing the right things and are in the right space and it will catch a bid for sure but I can’t say when.”

Morgans maintains an add rating on M7T but has reduced its 12-month target price from $1.56 to $1.36.

Imricor results no surprise

Imricor Medical Systems (ASX:IMR) posted its H1 FY24 results, which Power said was as expected.

“The numbers, they were in line with what we were expecting and the key thing is there is plenty of news coming for them,” Power said.

The company has developed the world’s only MRI compatible devices for performing cardiac ablations, where a catheter is guided into the heart to selectively destroy cells responsible for causing electrical disturbances resulting in arrhythmias (irregular heartbeats).

IMR is currently undertaking two clinical trials including its Vision-MR Ablation of Atrial Flutter (VISABL-AFL) pivotal trial supporting FDA approval of its products.

In Europe, where IMR has already received regulatory approval for atrial flutter, it’s about to start the VISABL-VT clinical trial for its second indication, ventricular tachycardia (VT).

“We are focused on progress of the two clinical trials with the US trial recruitment to complete by late CY24 and European
trial to commence in Q4 CY24 along with sales into the Middle East and Europe,” he said.

Subsequent to year end IMR undertook a $35m capital raising, which Power said “removed the funding overhang”.

Morgans maintained a speculative buy recommendation on IMR and 12-month target price of 94 cents.

ImpediMed putting ‘building blocks in place’

Medical devices company ImpediMed (ASX:IPD) posted its FY24 results after what Power said “had been a year of disruptions resulting in a disappointing operational performance”.

“There are signs of positive momentum appearing in the Q4 and with the new board and management team in place we expect to see a substantially better FY25,” he said.

“FY24 result was in-line with our forecasts.”

IPD reported a net loss of $19.8m (Morgans forecasted $19.2m) and revenue was $13.1m (Morgans forecasted $13.3m).

IPD designs and manufacture medical devices employing bioimpedance spectroscopy (BIS) technologies for use in the noninvasive clinical assessment and monitoring of fluid status and tissue composition.

The company’s SOZO device is the only FDA-cleared BIS solution for the clinical assessment of lymphoedema.

Power said he is focused on installed base growth of its SOZO device in the US and expects subsequent quarters to deliver on this metric.

“Investors are really sitting on the sidelines waiting for another quarter of results to come through and give confidence the new management team are putting all the building blocks in place.”

Morgans maintains a speculative buy recommendation on IPD and 12-month 20-cent target price.

Morgans upgrades Clinuvel to Add

Clinuvel Pharma (ASX:CUV) is up ~17% in the past five days after announcing a 16% increase on annual profit in FY24 to $35.6m in its annual results on Thursday.

CUV said this was largely driven by the growing demand for the company’s drug, Scenesse (afamelanotide 16mg), which led to a 15% rise in total revenues, reaching $95.3m for FY24.

Scenesse is a drug primarily used for the treatment of a rare genetic condition called erythropoietic protoporphyria (EPP), that causes painful skin reactions when exposed to sunlight.

Wilkie earlier this week upped the Morgans’ recommendation on CUV from a hold to an add, maintaining the 12-month target price of $16.

“He felt it had fallen back too much and pushed it up and the share price rallied strongly,” he said.

ScoPo’s Powerplays – Polynovo sales growth set to continue

Wound care company PolyNovo (ASX:PNV) is Power’s stock of the week after the company reported its FY24 results, which he said was largely in line with expectations.

Total revenue was up 57.5% to A$103.2m. US sales were up 49.4% to A$68.6m, ANZ sales were up 32.5% to $6.6m and rest of world was up 93.1% to $16.8m, including strong performance in UK and Germany.

Underlying EBITDA was $3m. Morgans had forecast $5.8m with consensus $5.2m and a loss of $2.7m on pcp. Net profit was $5.3m, with Morgans forecasting $3.6m, and the company benefiting from a $3.6m tax benefit. Cash balance sits at $45.9m

“The share price has come back a little and we had a good conversation with management last Friday,” Power said.

He said regional and indication expansion will drive revenue growth of above 20% per annum for the next three years.

“I reckon it’s going to do well,” he said.

Morgans has maintained its ADD rating on CUV and upped its 12-month price target from $2.50 to $2.85.

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.

Disclosure: The journalist held shares in Mach 7 at the time of writing this article.