ScoPo’s Powerplays: Is it time to fill the Christmas stocking early with some ASX health stocks?
Health & Biotech
Health & Biotech
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.
How is your day going? Are you feeling happy? New international research has shown posing with a fake smile can make people feel happier. However, faking a smile won’t change levels of anger or anxiety (shame as I’m running late with this story so feeling a little anxious).
A global collaboration led by researchers at Stanford University and published in Nature Human Behaviour has shown that even fake or posed smiles can make people feel happier.
In total, 26 research groups from 19 different countries and more than 3,800 participants were involved in the work as part of the Many Smiles Collaboration. The average age of the participants was 26, and over 70% were women.
Researchers asked the participants to take part in different tasks before completing a Discrete Emotions Questionnaire (DEQ) to measure their happiness levels.
The researchers studied the DEQ responses to understand if the participants’ reported level of happiness changed when they posed with a happy face or a neutral expression.
Effects of positive images, including pictures of dogs, flowers, kittens, and rainbows or culturally appropriate alternatives on the participant’s happiness levels using the DEQ were also studied.
Turns out participants reported higher levels of happiness after posing with a smile or in the presence of positive images.
But unfortunately putting on a happy facial expression didn’t decrease feelings of anger or anxiety.
And it’s a case of there’s a little more to smile about this week. By 4.30pm (AEST) on Friday the S&P/ASX 200 healthcare index (ASX:XHJ) was up 2.46% in the past five days, while the S&P/ASX 200 (ASX:XJO) was also faring better up 1.63%.
“It feels like we’re coming into a bit more positivity in the market and in years gone by there’s a nice little Christmas rally which gets going after Thanksgiving,” Power said.
“I reckon we can get on the front foot and start filling our bag full of a couple of growth names that have been neglected for a while.”
Quarterly reporting season is continuing on the ASX with several health names reporting results throughout the week.
Resmed (ASX:RMD) had a disappointing end to the week with its price falling ~5% on Friday after Q1 Fy22 results.
Morgans said results were actually better than expected, but the market seemed to think otherwise.
Adjusted NPAT of US$222m was flat yoy but above consensus of US$219m and Morgans’ expectation of US$221m. On an adjusted EPS basis, it reported US$1.51 which was flat yoy with consensus US$1.49 and Morgans’ US$1.50.
Top line revenue of US$950m came in above the consensus of US$944m, albeit below Morgans’ estimate of US$980m. Sleep and respiratory sales in the Americas were up but the rest of the world was down.
SaaS revenue grew 9% to US$106m, primarily due to continued growth in the Home Medical Equipment vertical. The much-focused on adjusted gross margin came in slightly below consensus and Morgans’ expectations.
A dividend of US$0.44 was declared, in line with expectations (cons/Morgans US$0.44).
“Resmed remains one of our key stocks, despite recent share price volatility and we remain positive solid growth will continue over the next type,” Power said.
Medical software technology company ImpediMed (ASX:IPD) is up more than 11% in the past five days after last week’s Q1 FY23 results, which were in line with expectations. Results included a record quarter of $2.9m total revenue, up 10% YoY with growth in core business metrics.
Headquartered in Brisbane with US and European operations, IPD focuses on non-invasively measuring, monitoring, and managing fluid status and tissue composition using bioimpedance spectroscopy (BIS).
Power said BIS has implications for a range of diseases with IPD initially focused on lymphedema in patients following breast cancer treatment.
IPD is awaiting the outcome of a meeting with the National Comprehensive Cancer Network (NCCN) in the US, which sets the guidelines for care.
“We have to keep a close eye on Impedimed because the key catalyst we’re looking for hasn’t yet materialised which is the outcome of the NCCN meeting to make their technology standard of care if it decides the data presented is worthy,” Power said.
“Even if it doesn’t get in, the business is making solid progress organically so Impedimed has been a laggard over the past six months and it’s good to see it come back to life.”
EBR Systems (ASX:EBR), which has been working on a new kind of leadless pacemaker system called WiSE, this week announced it had identified a potentially increased rate of battery depletion in some systems.
To date, there has been one confirmed case, with seven others suspected representing 6.3% of the batches implicated. The company said the impacted devices had not adversely affected patient health or safety with the root caused identified and manufacturing solutions implemented to address the issue.
The proprietary WiSE technology was designed to eliminate the need for a lead to the left ventricle in Cardiac Resynchronization Therapy (CRT), and the associated complications.
“Importantly for us, the top-line results from their trial which are due to read out in the second quarter next year remain on time and they don’t believe this issue with battery depletion will be a problem,” Power said.
The EBR share price has fallen ~15% in the past five days but was up ~3% on Friday.
“The company was very much on the front foot in identifying the problem, bringing it to people’s attention, and coming up with a solution.”
Health imaging company Volpara Health Technologies (ASX:VHT), which specialises in the early detection of breast cancer, released solid Q2 FY23 results.
VHT reported strong cash receipts of NZ$8.8m, up 23% on pcp or over 8% constant currency, and subscription receipts of $8.6m, up 24% on pcp or ~8% constant currency.
Contracted annual recurring revenue (CARR) was US$24.1m (NZ$36.6m), up from US$23.6m in the previous quarter. Annual recurring revenue (ARR) was US$19.1m (NZ$29.0m), up from US$18.5m in Q1 FY23.
VHT reported a net operating outflow of NZ$3.8m, including one-off restructuring costs of NZ$850k and the first of two bonus plan payments to CRA employees of NZ$500k. The company is continuing to reduce cash outflow, as it heads toward profitability.
Quarterly outflows are expected to decrease by at least NZ$1.5m from Q3 onwards. Guidance will be updated in November with half-yearly audited results. The last update was revenue guidance for FY23 of NZ$31.5-33m.
Post their strategic review, Power said VHT continues to focus on the most profitable products and markets as well as focusing on larger value customers. Cost reductions have started with more to come in the following quarters.
The company remains confident in its cash position to get to cashflow breakeven by 4Q24.
“There is clear evidence that cost-cutting initiatives they’ve identified are coming through and they’re continuing to win business,” Power said.
The VHT share price is up 10.83% in the past five days.
The number of IVF cycle numbers recorded by key Medicare items numbers 13200, 13201, 13202 is a key figure Morgans monitors.
Morgans remains confident in IVF provider Monash IVF (ASX:MVF), with September IVF cycles numbers at 4797, down 3% on pcp, however up 3.5% on August cycles taking a three-month average down ~8.6%.
“We’re very positive on the IVF sector and we think Monash is gaining market share and what we do is watch the monthly cycle numbers and we are coming into a seasonally stronger part of the year,” Power said.
“Monash has a 25% market share and they’ll have their AGM in November where they’ll likely provide a trading update and first-half guidance.”
Monash has a 12-month target price of $1.24/share.
Health imaging company Pro Medicus (ASX:PME) is due to hold its AGM on November 19. PME announced what Power described as a “stellar result” for FY22, including EBIT margin expansion to 67% (+400 bps on pcp).
NPAT was up 44% to $44.4 million and revenues growing 38% to $93.5 million with 65% gains in transaction revenues, 5% gains in support fees and an 8% bump in professional service fees.
Pro Medicus announced renewal of two contracts for a minimum value of a $47m.
“If we are right about a Christmas rally, then it will be some of these growth stocks which will do really well and it’s where we want to position ourselves,” Power says.
The PMD share price is up ~1.66% in the past five days.