• ASX health sector falls in mixed week of FY23 results as reporting season continues
  • Monash IVF reports solid FY23 result and forecasts higher IVF cycles going forward
  • Ramsay healthcare plunges on disappointing FY23 result and cut in final dividend 

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.

How is your memory and do you enjoy playing video games? Researchers recently studied the effects of various video game types on memory in young and older adults.

The University of York scientists matched participants’ gaming preferences with their performance in memory and concentration tasks and found older adults who played digital puzzles had better focus, while younger adults who played strategy games showed improved working memory.

Memory issues are common as people age, especially with working memory, which holds small amounts of information for cognitive tasks.

The researchers, whose findings were published in Heliyon, suspected gaming type could affect working memory and focus.

The study involved 482 participants, mostly females, aged 18 to 81 who were categorised into young (18-30) and older (60-81) groups, reporting gaming habits, types, time spent, and start dates.

Participants completed online working memory assessments under various distraction conditions.

Since aging has a negative impact on working memory, the researchers wanted to test whether certain types of games are connected with improvements in memory among younger and older adults.

The researchers therefore further divided the younger and older groups into either a non-player category or categories based on the gaming type they reported playing including:

  • action
  • strategy
  • puzzle

The researchers found younger adults who played strategy games showed a greater working memory capacity compared to young adults who played action games.

Data analysis revealed that older adults who engaged in digital puzzle games exhibited superior working memory compared to peers who played different game genres or refrained from gaming. Additionally, these older adults displayed enhanced distraction-filtering abilities.


To markets…

At 11.30pm (AEST) on Friday the S&P/ASX 200 Healthcare index (ASX:XHJ) was down 2.45% for the past five days, while the benchmark S&P/ASX 200 (ASX:XJO) was down 0.5%  for the same period.

Power says the fall was driven by a weakness in big healthcare names including CSL (ASX:CSL), ResMed (ASX:RMD) and Ramsay Health Care (ASX:RHC).

Power says it has been a mixed reporting season for healthcare but unfortunately more were heading towards the down side.

“We’ve had more downs than ups and weren’t expecting that at the beginning of reporting season,” he says.

“Two weeks ago at the start of reporting season we were reasonably upbeat and it has disappointed but having said that as we look out to the remainder of the year we still remain confident, particularly with mid to smaller end of the market coming back into favour.”

Power says the lower Aussie dollar may also work in favour of many ASX health names.

“Quite a few of these companies generate money overseas, particularly in the US and with the lower Australian dollar are benefiting.”


Monash IVF still on fertile ground

Power’s top pick for last week fertility company Monash IVF Group (ASX:MVF) reported its FY23 results this week with adjusted NPAT up 14.9% yoy to $25.5 million in line with guidance, albeit Power says slightly lower than its expectations of $26.2 million.

Reported NPAT was $22 million, comprising of $3.7 million in non-regular items including acquisition associated costs and commissioning costs.

Underlying EBITDA was $48.5 million above Morgans’ forecast of $45.6 million, while EBITDA margins held flat at 25%.

Power says revenue was up 11.1% to $213.6 million and was in line with expectations driven by market share gains in key markets in Australia of 1.4% to 22.7% which included benefit of recent acquisitions and an average 4% price increase, coupled with a rebound in international revenue.

Australian stimulated cycles were up 5.5%, in contrast to an industry decline of ~1.1%,  while international cycles rose 11.6% and ultrasound volumes were up 4.9%.

Net operating cashflow was up 22.6% to $39.1 million, with strong conversion of cashflow to EBITDA of 100%.

The balance sheet remains strong with total net debt of $31.0m. A final dividend of 2.2 cents/share was declared bringing the total dividend to 4.4 cents/share.

Power says Monash total volumes of IVF cycles grew in FY23 and were particularly pronounced in the 2H23 with a strong rebound in industry volumes, up 6.6%,  against MVF market share in H2 FY23 up 2.2% to 23.9%.

He says their new patient pipeline remains strong and industry volumes appear to have stabilised at a new higher base vs pre-Covid-19 levels and up 22% since FY219.

Management sees industry volumes in Australia returning to growth in FY24 of 2-3% and can see growth of 3-5% in the medium term given the demand drivers including increased maternal age, genetic testing reimbursement, egg freezing, and LGBTIQ+ patients.

“Structurally they’re looking really good in terms of the higher level of cycles coming through and they’re having success securing new fertility specialists and they’ve made acquisitions which will help bolster their revenue going forward and overseas operations after a couple of softer years,”  Power says.

“They’re coming out of this post-Covid era quite nicely and overall are looking really good.”


Chemist Warehouse contract hangs over EBOS

Power says pharmaceutical distributor rival EBOS Group (ASX:EBO) has reported another year of consistent earnings growth, up 14.1%, which benefitted from acquisitions in the medtech and consumables category.

EBO reported underlying NPAT of $281.8 million, up 23% including one-off M&A costs of $28.5 million. Revenue was up 14% to $12.4 billion, above Morgan’s expectations of $11.9 billion.

Underlying EBITDA increased by 33.2% to $582 million, whereas Morgans forecast $567.5 million with the company benefitting from acquisitions in FY22.

Operating cash flow increased to $404.7 million from $291 million pcp due to strong earnings growth and a disciplined approach to working capital.

Power says whilst no guidance was provided, EBO did indicate it expects another year of profitable growth in FY24 after a strong start to July.

“FY23 result was solid and if we look back over the past decade this company really hasn’t missed a beat and talk about compound EPS growth of around 11% per annum over the last 10 years,” Power says

However, the company did announce in June that Chemist Warehouse intended to pursue alternative wholesale supply arrangements and that its contract won’t be renewed beyond the expiry date of June 30, 2024.

EBO’s loss was to the gain of pharmaceutical distributor rival Sigma Healthcare (ASX:SIG) which went on to announce it would supply the chemist retail  giant both Pharmaceutical Benefits Scheme (PBS) medicines and Fast-Moving-Consumer-Goods (FMCG) products.

Power says the loss will affect EBO’s FY25 year and the question becomes how do they fill that gap?  Chemist Warehouse contributes about $2 billion or 17% annually to EBO’s revenue.

Power says Chemist Warehouse was a lower margin contract and the company has made some acquisitions which are higher margin businesses, which should start flowing through in the next couple of years.

“They’ve also recently completed their pet products manufacturing facility down in Parkes and that is now working, we understand, five days a week 24-hours a day,” he says.

“Now they’re manufacturing as well as distributing products that provides a higher margin business.

Power says there will be a dip in EBO’s earnings in FY25 but given the quality of the management and diversity of the business it won’t be too much and should recover.

“We’re forecasting it will be about 3% in FY25% with 11% growth in FY24 and then growth trajectory resuming with a 14% increase in FY26.”

Morgans maintains an Add rating for EBO and has lifted its 12-month price target from from $38.07 to $39.43.


Nanosonics flags delays in Coris launch

Infection prevention company Nanosonics (ASX:NAN) disappointed the market this week with its FY23 results, falling ~10%.

Power says FY23 results came in at the top end of guidance however the main disappointment was a flagged six-month delay in the launch of its trademarked CORIS device, which was expected before the end of CY23.

The device is attempting to solve a complex disinfection problem in removing the biofilm from the flexible endoscope.

“We were disappointed in Nanonsonics with the FY23 result in line with guidance they provided so nothing to trouble anybody there,” Power says.

“What we were looking for was some clarity around the launch of CORIS and what they’ve said is after some discussion with the US FDA they have to undertake what they call in-human factor testing in the US which has created a delay.

“More particularly they said they won’t do the launch in Europe or Australia until they’ve done that in-human factor testing in case something pops up.”

Power says in terms of revenue guidance for FY24 it remains solid with NAN forecasting growth of 15-20% and “the core business continuing to move ahead nicely”.

Morgans maintains an Add rating for NAN but has reduced its 12-month target price from $5.49 to $5.32.


Ramsay Healthcare feels cost inflation pressures

Australia’s largest private hospital provider reported mixed FY23 results with revenue gains across all regions on increased surgical activity, although margins and profit lagged.

RHC manages a network of 74 healthcare facilities in Australia, including hospitals, clinics, and day surgery units. Additionally, they oversee 14 psychology practices, hospital in-home services, telehealth resources, allied health clinics, and a retail pharmacy franchise chain comprising over 60 community pharmacies along with 40 in-hospital dispensaries.

Furthermore, Ramsay is the proprietor of Ramsay Santé, the largest private care provider in Europe. In the UK, they manage acute hospitals and operate the Elysium Healthcare mental health chain.

Power says earnings improved in Australia, UK acute hospitals and Asia, but were partially offset by ongoing staff shortages and inflationary pressures in the EU and with Elysium Healthcare.

Power says while inflationary headwinds, coupled with digital/data investments and higher funding costs, hold back a full recovery in near term op leverage, growing volumes and numerous performance initiatives point to an improving earnings trajectory.

The company has cut its final dividend to 25 cents/share from last year’s 48.5 cents/share.

“Even though they’re guiding to improve procedure volumes there’s still cost inflation pressures that they’re navigating,” Power says.

“It’s quite a diversified group geographically and their French operations and Ramsay Santé  have performed quite poorly in FY23 and will recover but perhaps more slow than people were thinking.”

In September 2022, a takeover bid from American global investment company KKR, which had offered $88 cash per share, fell over, disappointing shareholders and sending the stock plunging. It is down more than 33% in the past year to $48.71.

Morgans has adjusted its FY24-25 earnings but remains optimistic on the stock, maintaining an Add rating but reducing its 12-month price target to $66.40 from $75.57.

“While the operating environment remains unpredictable and dynamic, with ongoing inflationary pressures and workforce issues, growing volumes and improving productivity, albeit slowly, are suggestive of growing momentum,” Power says.


The MVF, EBO, NAN & RHC share price today:



ScoPo’s Powerplay – Market awaits Mach 7 FY23 results

Mach 7 Tech (ASX:M7T) is Power’s pick of the week, with the imaging company due to report its FY23 results next week.

M7T dropped ~12% the week its Q4 FY23 results were released at the end of July but at the time Power thought the market may have over-reacted to what really was not too bad a result and got spooked by a timing issue with a receipt.

Power says the key result here was the operating cashflow print versus guidance of breakeven, which showed a small miss versus expectations.

“The result mostly came down to a one business day lag between a $2.5 million invoice transfer versus when it showed up in the accounts,” he says.

Power says by all accounts and by rational thinking (to include the payment), the miss in Morgan’s view was inconsequential at 1% of receipts or $270k.

“We thought the explanation was straightforward and did not expect the share price reaction to be so myopic,” he says.

“As a result, we are happy to take advantage of the shorter-term views and view the weakness as an opportunity to add to positions.”

Power says he takes a positive long-term view on M7T. Morgans maintains an Add rating with a 12-month target price of $1.65.

The M7T share price today:


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