ScoPo's Powerplays: ASX health stocks up as Cochlear upgrades earnings guidance

ASX health sector up in line with broader market but some names ail after quarterly results
Cochlear lifts net profit guidance for FY24 after stronger than expected first half sales revenue
CSL to report half year results next week with big catalyst Phase 3 trial results also coming up

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.

Do you eat much salmon? A study published in The Journal of Nutrition explores the health benefits of salmon, identifying 508 food-specific compounds (FSCs), including 237 unique metabolites in the fish.

When incorporated into a Mediterranean diet, salmon contributes at least 48 compounds and 30 metabolites, compounds generated during the digestive process.

A Mediterranean diet places a focus on wholesome fats, with a preference for olive oil and prioritises plant-based sources of nutrition, encompassing vegetables, fruits, and whole grains. Protein is derived from various sources, including poultry, fish, plant-based proteins like beans, along with yogurt and cheese.

Researchers conducted a secondary analysis of an existing randomised controlled feeding trial with 41 participants following a Mediterranean diet for two five-week periods, separated by a four-week break. During the diet intervention, participants consumed two weekly servings of salmon.

None of the participants were initially on a Mediterranean diet, and their ages ranged from 30 to 69, with obesity or overweight conditions.

Researchers recorded cardiometabolic health indicators (CHIs) and collected blood plasma samples before and after the study.

They analysed participants’ plasma, salmon, and 99 other foods from the Mediterranean diet. Identifying compounds present only in salmon, termed salmon FSCs, the researches associated metabolites with these FSCs using machine learning.

Notably, increased levels of two annotated salmon FSCs and two metabolites were linked to improved cardiometabolic health, evidenced by CHIs, showing reduced heart disease indicators like total cholesterol, low-density lipoprotein cholesterol, triglycerides, and apolipoprotein B.

To markets…

And ASX health stocks are showing indicators of good health this week. At 12.15pm (AEDT) on Friday the S&P ASX 200 healthcare index (ASX:XHJ) was up 1.9% for the week, exceeding the benchmark S&P ASX 200 (ASX:XJO) which rose 0.7% for the same period.

Power says a few stocks have been disappointing following release of quarterly reports.

Brisbane-based medical software technology company ImpediMed (ASX:IPD) has seen its share price fall ~20% in the past five days after release of its Q2 FY24 cashflow report which was below expectation.

Furthermore, IPD is still recovering from last year’s board stoush with new leadership including the appointment of Dr Parmjot Bains as managing director and interim CEO.

“They did report a weaker than expected second quarter result and with a new board and CEO in place they’re still getting themselves up to speed,” Power says.

“The new team has a bit of work to do to regain confidence of the shareholder base but I am sure they will.”

Power says wound care company Aroa Biosurgery (ASX:ARX) has also seen its share price fall since it released its Q3 FY24 results at the end of January.

“Aroa’s third quarter results were also below expectations and since they reported their share price has been down ~18% so we’ve had a couple of disappointing share price reactions to weaker than expected results,” he says.

“But we’re still positive that the sector is in good shape having underperformed the market for the previous two years up until November last year and it’s recovered nicely since then.”

Power says reporting says reporting season will kick off in earnest next week with health imaging company ProMedicus (ASX:PME) and Australia’s biggest healthcare name CSL (ASX:CSL) both due to release half year results.

Cochlear upgrades FY24 earnings guidance

Hearing tech company Cochlear (ASX:COH) rose ~5% on Thursday after announcing that with better than expected first half revenue for Cochlear implants, underlying net profit for FY24 is now expected to be $385-400 million, a 26-31% increase on FY23.

The upgrade is 8% above the midpoint of the prior guidance of $355-375 million advised in August last year. Power says consensus was sitting at $367 million with Morgans at $363 million.

COH says first half sales revenue were up 25% (20% in constant currency) to $1,113 million with underlying netprofit of $192 million.

“Cochlear implant trading conditions have been strong across the first half, with units growing 14%. We have maintained the market share gains made in FY23 and market growth has continued to be robust across both developed and emerging markets, as well as all age segments – children, adults and seniors,” CEO and president Dig Howitt says in COH’s ASX announcement.

“The key change to our expectations is that we now expect to achieve 10-15% growth in our Cochlear implant units for FY24 compared to the high single-digit growth expected in August.”

Morgans has downgraded its recommendation on COH to hold but upgraded its 12-month target price to $290.50 from $269.40. The COH share price is currently at $304.70.

In a note to clients Morgans healthcare analyst Dr Derek Jellinek says while details are lacking, and expected to be revealed with H1 FY24 reporting later this month, improving clinical capacity and ongoing Covid-19 catch-up surgeries, not to mention the successful Q2 FY23 launch of the N8 sound processor will likely continue to aid broad based Cochlear implant growth and share gains across key geographies as well as customer segments.

“However, we view it as unlikely CI (Cochlear implant) unit growth can maintain such an elevated pace, with momentum slowing (H2 FY23 +17%; H1 FY24 +14%) and H2 FY24 targeting 11% at the mid-point of a wide guidance range (6-16%),” Jellinek wrote.

“While fundamentals remain sound, with stabling surgical/clinical capacity and referral rates, we expect sales to normalise as Covid-related gains fade and the N8 rollout laps, with profit growth following a similar trend all reflected in the current multiple.”

Morgans initiates coverage of Microba

In its initial coverage report Morgans says Brisbane-based Microba Life Sciences (ASX:MAP) is an emerging leader in the microbiome industry specialising in gut health testing and therapeutic development.

MAP specialises in human gut microbiome testing and data analysis, offering services to clinicians, consumers, and researchers globally.

Morgans says expanding testing services and increasing awareness among healthcare professionals about the pivotal role of the microbiome are driving a surge in demand.

“This heightened awareness is fuelling increased interest in microbiome-related services, products, and advancements, indicating a growing recognition of its impact on overall health across diverse medical applications,” Morgans says.

MAP operates on a global partnership model collaborating with medical diagnostic leaders including Sonic Healthcare (ASX:SHL) – which is also a major shareholder – and German-headquartered international medical diagnostic company SYNLAB.

“One of their major shareholders is Sonic Healthcare, which is also one of their major distribution partners in the US so we think they’re a terrific story going forward.”

Morgans initiated coverage of MAP with speculative buy recommendation and 12-month target price of 35 cents/share.

The IPD, ARX, COH,PME MAP & SHL share price today:

ScoPo’s Powerplay – All eyes on CSL for more than just half year result

CSL (ASX:CSL) is Power’s pick of the week with the healthcare giant due to report its half year results next Tuesday.

“CSL will be the big bellwether for the sector and there shouldn’t be any surprises on the numbers,” Power says.

“The big news we are expecting from CSL and not necessarily at this result but in the next couple of weeks is their Phase 3 clinical trial result for prevention of secondary heart attacks.

“That has been ongoing for the last seven years and if it is positive has the potential to be very significant for CSL moving forward.”

Power says Morgans analysts give the trial a “50-50 chance” of success, with it representing about 8% of their 12-month target price valuation of $328.20. The broker maintains an add on CSL.

“That is a pretty big catalyst that everyone is waiting for,” he says.

“The Phase 3 results are due out before the end of the quarter, so before the end of March so will keep everyone very interested.”

The CSL share price today:

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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 author held shares in Sonic Healthcare and CSL at the time of writing this article.