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Health & Biotech
Healthcare and life sciences expert Scott Power, who has been a senior analyst with Morgans Financial for 27 years, gives his take on the ASX healthcare sector for the week and his ‘Powerplay’ stock pick.
It’s been another big week for half-year healthcare results with sector expert Scott Power saying performance across the smaller players has been particularly volatile.
He said there had been more stocks which have had negative reactions to their share prices upon release of results than positive.
“I would say this particular reporting season has been one of the worst for a long time,” he said.
“That reflects more than 50% of the companies have had a negative reaction to their results coming out across our coverage list.”
Power said that at the big end of town Cochlear (ASX:COH), CSL (ASX:CSL), Healius (ASX:HLS) and Sonic Healthcare (ASX:SHL) have also underperformed in this reporting season.
“Their share prices had been relatively weak heading into the reporting season,” Power said.
At 1.45pm (AEDT) on Friday, the S&P/ASX 200 Health Care index (ASX:XHJ) was down 0.78% for the past five days, while the benchmark S&P/ASX 200 (ASX:XJO) fell 1% for the same period, with global geopolitical and macroeconomic factors continuing to play on the Aussie bourse.
In some positive news for the larger caps Ramsay Health Care (ASX:RHC) – which Power described as a ‘chronic underperformer’ – saw its share price rise ~8% on Thursday after reporting strong performance in its Aussie and UK hospitals during during half.
In a note to client Morgans healthcare analyst Derek Jellinek said underlying operating profit for Australia’s largest private hospital operator was in line with expectations. Ramsay reported EBIT of $500m.
He noted that underlying NPAT at $159m was at the top of the guidance range, supported by ~5% decline in net financing costs.
Operating cash flow increased 44% to $300m with a fully franked dividend flat at 40 cents.
Jellinek added that FY25 guidance was qualitative, with activity growth, but at a lower rate than FY24.
“Earnings were a mixed bag, with growth in Australia and UK acute hospitals, while (UK-based) Elysium and EU went backwards on going inflationary pressures.”
Jellinek pointed to the fact management has hired Goldman Sachs to “further explore and advise on strategic options” of its 52.8% stake European hospitals business Santé.
“The operating environment remains unpredictable and dynamic, with lingering inflationary pressures challenging a strong earnings recovery despite growing volumes,” Jellinek wrote.
Morgans maintains a hold on Ramsay and has lowered its 12-month target price from $37.74 to $37.10.
Morgans has substantially upgraded the price of Imricor Medical Systems (ASX:IMR) which this week released its full FY24 results.
Imricor recorded revenue of US$959k, up 56% on pcp with operating costs down 1% to $17.3m including R&D investment.
The company reported an underlying net loss of US$15.5m, below Morgans forecast of US$16m. The company ended the year with US$15.7m cash to fund major milestones in FY25.
Power emphasised Imricor was the only company in the world that provides MRI-compatible consumable devices, such as single-use ablation catheters, required to perform cardiac ablations in an iCMR lab, and has several near-term catalysts.
“Their clinical trials are progressing and more sales out of Europe and the Middle East are expected,” Power said.
“They are also expecting the approval for their NorthStar 3D mapping system of the heart both in Europe towards the middle of the year and the US in the second half,” he added.
“That mapping system we think has got huge value for the business and we think when those approvals come through, the market will really stand up and take notice.
“We think 2025 will be very exciting for Imricor.”
Morgans maintains a speculative buy on Imricor but has upgraded its 12-month target price from $1.51 to $2.18.
Power’s pick for last week PolyNovo (ASX:PNV) has seen its share price slump more than 25% in the past five days, despite its H1 FY25 results being in line with expectations.
The wound-care company reported revenue up 25% on same time last year (STLY) to a record $59.86 million, with net profit up 24% to a record $3.38m.
Total revenue was $59.9m up 22.8% on STLY, including revenue of ~$5.8m from US disaster preparedness agency BARDA, which is helping foot the bill for a pivotal trial of PolyNovo’s Novosorb BTM to treat full-thickness burns.
The trial has been fully recruited and a premarket approval application is expected to be filed with the FDA by July 2025 with approval 180 days later (assuming no issues).
The company achieved record sales in the US of $41.2m up 27.9% on STLY.
“While 28% growth in sales is to be applauded, we can see that the equity market wants more; and we want more,” Chairman David Williams told the market.
“It is intended that this will be captured from the base we have built by taking market share, introducing new products, and opening new markets.”
PolyNovo is also performing well in European countries where it holds the number-one position in burns in Germany, France and Turkey and second in Spain.
Morgans sees the slump in share price as a buying opportunity, maintaining an add rating and 12-month target price of $2.85.
“The key for us is the consensus number for the next couple of years looks achievable with 20% revenue growth and that is starting to filter down into profit growth,” Power said.
“We are a bit perplexed with the extent of the share price movement downwards and it’s an example on how volatile markets are at the moment.”
Specialist in medical imaging software solutions Mach7 Technologies (ASX:M7T) is Power’s pick of the week after reporting its H1 FY25 results.
Power’s colleague Iain Wilkie described the result as stronger than expected “with better cost controls a positive surprise in the midst of continued investment in people, processes, and tools to drive longer-term operational efficiencies and product offerings”.
Revenue for the period was up 33% on prior corresponding period (pcp) to $17.7m, driven by the company’s growing billable subscription base alongside a capital license of $3.5m through its existing customer base.
Operating expenses were $15.8m, up 15.3% on the pcp inclusive of expenses relating to product development.
Annual recurring revenue (ARR) now sits at $25.1m, up 35% on pcp), while contracted annual recurring revenue (CARR) grew 19% on pcp to $31.8m.
An on-market share buy-back of up to $5m is expected to commence on Mar 2025.
Morgans maintains an add rating on Mach7, increasing its 12-month target price from $1.36 to $1.37.
“That share price is starting to firm after a couple of years of not doing much at all,” Power said.
“We are pretty keen on this name given the next couple of quarters are seasonally stronger and they’re moving nicely into profitability with their pipeline of sales orders increasing,” Power said.
Microba Life Sciences (ASX:MAP), which has technology for measuring the gut microbiome, reported its H1 FY25 results with what Wilkie described as having “no major surprises” and results broadly in line with Morgans’ revenue and net loss forecasts.
“Overall, the business appears to be performing in line with expectations, with strong prescriber growth and referral rates continuing to read-through well for growth into the balance of FY25 and beyond.”
Morgans maintains a speculative buy on Microba and has marginally lifted its 12-month target price from 33 to 34 cents.
“We continue to see significant upside here as the testing and services deliver scale, and the therapeutics continues to de-risk,” Wilkie wrote.
Meanwhile, Morgans healthcare analyst Emily Porter said the H1 FY25 result for Monash IVF Group (ASX:MVF) result was in line with guidance provided, with NPAT up 5.5% to $15.8m.
“Short-term volatility in industry cycle volumes does not alter our view of the strong structural growth drivers that we think will underpin growth in the IVF industry,” Porter wrote in a note to clients.
“We expect MVF to continue to gain market share in Australia, leverage infrastructure and patient management system to drive higher margins and continue to expand in South East Asia, which we think will drive growth in earnings over the next few years.”
Morgans maintains an add rating on Monash but has decreased its 12-month target price from $1.50 to $1.45 on earnings revisions.
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 journalist held shares in Sonic Healthcare and Mach7 at the time of writing this article.
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