• Omicron has driven up potential value in two stocks, Sonic Healthcare and Healius
  • Morgans downgrades  recommendation of ProMedicus from  “hold’ to “reduce”
  • ScoPo’s stock of the week — Ansell

Healthcare and life sciences expert Scott Power, who has been a senior analyst with Morgans Financial for 25 years, explains what the movers and shakers have been doing in health and gives his ASX powerplays.


Theme of the week

The ASX healthcare index returned 8% in 2021, underperforming the broader index which gained 13%.

Global M&A activities hit a new record of US$5 trillion last year, and had continued strongly even as the year drew to a close.

The latest global takeover saw Oracle Corp acquiring digital data provider Cerner, in a deal worth US$28bn.

Cerner is a provider of digital information systems used in hospitals to support medical professionals, and has around 4,000 hospitals under its network.

“Cerner has 262 million patient records,” Power told Stockhead.

“What we find interesting here is how value is being put around these patient records.”

“This will have wider implications for ASX stocks such as Resmed, Volpara and Impedimed, who own a lot of data around people’s sleep, mammograms, and lymphedema,” he said.

“So the point is, there is a value that these big tech companies are putting on data, in this case health data,” Power continued.

In Australia,  CSL (ASX:CSL)’s acquisition of Switzerland’s Vifor Pharma at the end of last year was a good one for CSL investors, according to Power.

CSL makes up a large part of the ASX Healthcare index, and it offered Vifor Pharma an all-cash offer of US$179.25 a share, or US$11.7bn.

Power said the acquisition has made Morgans increase its 12-month target price on CSL from $324.4 to $334.7.

“The market may struggle with the rationale of the acquisition, but we believe this is misplaced as this deal looks as unique as CSL itself,” Power said.

“The acquisition has allowed CSL access to a defensible specialty product portfolio with strong market positions and growth opportunities, far from a typical pharma transaction.”

COVID testing driving up stock prices

The continuing spread of Omicron has driven up potential value in two stocks, Sonic Healthcare (ASX:SHL) and Healius Ltd (ASX:HLS), says Power.

Morgans has a 12-month price target on Sonic at $50.72 (vs today’s price of $44.66), and Healius at $5.79 (vs today’s price of $5.09).

“We view SHL to remain in a strong position for continued organic growth with the emergence of new coronavirus variants,” Power said.

Power says that Sonic’s recent acquisition of Propath will also drive its presence in the US, a market that represents a sizable anatomical pathology (AP) opportunity of over US$10bn.

“And for Healius, the near term remains all about COVID testing, with Omicron driving a new phase of the pandemic which we view as under-appreciated by the market,” Power said.

SHL, HLS share price charts

Downgrade for Promedicus

Morgans has downgraded its recommendation of ProMedicus (ASX:PME) from a “hold’ to “reduce”.

“We’ve updated our recommendation based on recent share price strength, which we view has run ahead of fair value in the short term,” Power said.

The PME stock price is up 65% over the past 12 months to $54.23, and Morgans has a 12-month target at $54.49.

“Trading in this stock continues to be volatile, with a large trading range of 40% over the last six months,” says Power.

“Given the current valuation, we’re happy to remain active and trim overweight positions, but the thematic and earnings visibility on Promedicus remains strong to retain a core holding for the long-term.”

ScoPo’s Powerplay

Power’s stock of the week is Ansell Ltd (ASX:ANN).

Ansell operates in the personal protective equipment (PPE) space. Power believes that while the unprecedented demand for PPE will eventually slow, it is unlikely to fall off a cliff.

“It will merely shift from COVID-driven products to more differentiated ones on the back of vaccine rollouts and improving economic outlook,” he said.

Morgans has a 12-month target price of $41.87 on ANN, vs the current share price of $32.15.