ScoPo’s Powerplays: Budget boost and inflation fears meet head on
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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.
Healthcare finished the week up 0.76 per cent, compared to the broader market which declined by 0.93 per cent.
The main focus this week for the health sector has been the Federal Budget, and fears that inflation may have crept into the broader market, especially in the valuations of growth stocks.
The Budget was especially beneficial for the aged-care sector, with most aged-care stocks rising the day following the Budget speech. The sector is set to receive $17.7 billion in government spending over the next five years.
Power believes there will be consolidation within the aged-care sector, and this has played out in the market with the recent takeover offer of Japara Healthcare (ASX:JHC) by Little Company of Mary Health Care Ltd, an Australian non-profit organisation. Japara is yet to respond to that offer.
The sector was also boosted by the launch of a “patent box” announced in the Budget – a tax incentive scheme designed to encourage the commercialisation of products that are invented and developed here. Under the scheme, new patents that have been developed in Australia will be taxed at a concessional 17 per cent rate, which will initially apply to the medical and biotech sector.
But Power is still unsure how far-reaching the patent box will be.
“Obviously, life science and biotech have a broad definition. The concept might even include diagnostics, medical device therapeutical drugs”, he said.
Another pleasant surprise in the Budget was the subsidy announced in the IVF segment – with couples now able to get reimbursement for pre genetics testing (PGT).
“That news is positive for the IVF sector, and we expect the stock volumes that we’ve seen in the last nine months to continue, especially in those two stocks,” Power stated.
Capital raising in the sector has also continued, although at a slower rate than previously.
Immuno-oncology tech company Regeneus (ASX:RGS) is raising up to $4.5 million in a three-stage placement. The fund will be used to accelerate the work required to initiate its Progenz Osteoarthritis Phase 2 trial in the US.
Oventus (ASX:OVN) is another company that has tapped the market for fresh funds in the past week. The Brisbane-based medical device company has received firm commitments for a $5m placement.
The funds will be directed to strengthen the company’s balance sheet, and enable Oventus to enhance its manufacturing operations and logistics, as well as to support one-off restructuring and formation costs.
Two announcements relating to the University of Vermont Health Medical Center (UVM) were released during the week. UVM’s hospitals are currently undergoing an upgrade of their legacy, older systems.
The UVM Medical Center is located in Burlington, Vermont, and is the teaching hospital for The Larner College of Medicine.
Pro Medicus (ASX: PME) announced that it has signed a $14m, 8-year contract with the UVM to implement the company’s Visage 7 Enterprise Imaging platform across UVM’s six hospitals. Planning for the rollout is to commence immediately, with initial go-lives targeted for the second half of the calendar year.
Mach 7 (ASX:M7T) was another health tech company to has won a contract with the UVM this week. The company signed a five-year subscription (SaaS) deal with UVM for its eUnity viewer. UVM previously purchased a licence to the Mach7 Enterprise Imaging Platform (EIP) in 2017.
Nuheara (ASX:NUH) has commenced shipping of its HP Elite Wireless Earbuds. The earbuds are the first product manufactured by Nuheara for tech giant HP, under the umbrella supply agreement between the two companies.
Another hearing tech stock that Power recommends is the soon-to-be listed Audeara (ASX:AUA), of which Morgan was the lead IPO manager. The company makes headphones designed to help people with hearing loss, and has raised $7 million in its IPO.
“The whole hearing sector is of interest to us, and we think there’s a good opportunity in this sub-sector as people become more aware of the issues of poor hearing health and social implications,” Power said.
Power’s pick of the week is Micro-X (ASX:MX1), the maker of portable X-ray machines.
Micro-X’s vision is to use its unique technology to create a low-cost scanners of equivalent performance with no moving parts, compact enough to be mounted in any ambulance.
Underpinnig this vision is the company’s “cold cathode” technology, which allows for X-ray beams to be fired at the subject from different angles, with no moving parts.
Power believes Micro-X is a good pick, as its technology can be used in broader applications, which includes check-in systems at airports, and a coctract with the US Homeland’s Transport Security Administration.
“We have a speculative buy rating on Micro-X, and a 12-month target price of 61c,” Power said.
Micro-X is trading today at 33c.
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