Scott Power: Which ASX health stocks reaffirm FY25 guidance?

ASX health stocks fall about 0.9% in past five days, while broader market down 1.46%
Aroa Biosurgery and EBOS reaffirm guidance after reporting latest quarterly results
CSL highlights clinical progress, new areas of development and pipeline aspirations

Healthcare and life sciences expert Scott Power, who has been a senior analyst with Morgans Financial for 26 years, gives his take on the ASX health care sector for the week and his ‘Powerplay’ stock pick.

Speaking with Stockhead, Morgans analyst Scott Power said the current focus in the healthcare sector was on the quarterly reporting season with several companies releasing their latest results.

“We’ve spoken about the rotation into small caps but to expand on that if a company announcing a profit upgrade for example they are getting well rewarded but conversely if there’s any hiccups the market is marking you down pretty quickly,” Power said.

“It’s still a momentum market and we are coming into the seaonally stronger parts of the year and once the US elections are out of the way I think we will se a pretty strong charge into Christmas.

“Whichever party wins, I think it will create more certainty.”

Aroa maintains guidance

Power said soft-tissue repair company Aroa Biosurgery (ASX:ARX) posted a solid Q2 FY25 cashflow result, highlighted by receipts up 35% on pcp and operating cash outflow of NZ$1.2m, which improved by NZ$2.4m on the previous quarter.

Importantly revenue FY25 guidance of NZ$80m to NZ$87m had been reconfirmed which, if achieved, would see sales growth at 26% (mid-point) and positive EBITDA.

“This implies a stronger H2, which we believe is achievable,” Power said.

Morgans maintains an add rating and 12-month target price of $1.05 on ARX.

EBOS reconfirms FY25 guidance

Pharmaceutical distributor EBOS Group (ASX:EBO) released its September results at its AGM, which included underlying earnings having grown 7.4% compared to pcp as adjusted for a loss of a wholesale supply contract to supply Chemist Warehouse from July 1, 2024.

Importantly Power said EBO reiterated its guidance for FY25 and expected to generate underlying EBITDA of between $575m to $600m.

“Their EBITDA is growing between 5% and 10%, which is consistent with the growth of their business so that looks pretty good,” he said.

EBO lost the wholesale supply contract of unlisted Chemist Warehouse to rival Sigma Healthcare (ASX:SIG), for which it is planning to merge.

The Australian Competition and Consumer Commission is due to hand down its decision on the proposed union of Chemist warehouse and SIG on November 7.

As with the Pharmacy Guild of Australia, EBO opposes the union as not being in the best interest of consumers.

“The key catalyst in the whole EBOS and Sigma story is what the ACCC will say in November in terms of allowing the merger between Sigma and Chemist Warehouse,” Power said.

READ > Health Check: Despite headwinds, Australia’s third force in pharmacy finds prescription for growth

ResMed reports strong start to FY25

Leader in obstructive sleep apnoea and other sleep-related respiratory disorders ResMed (ASX:RMD) has had a strong start to FY25 reporting on Friday an 11% increase in revenue to ~US$1,225.5m in Q1, which Power said was broadly in line with Morgans expectations.

RMD said its focus on operational excellence resulted in another quarter of YoY margin expansion and a 34% increase in operating profit.

Revenue in the US, Canada, and Latin America, excluding residential care software, grew by 11% for Q1. Revenue in Europe, Asia, and other markets, excluding residential care software, grew by 10% in constant currency.

The company said its residential care software revenue increased by 12%, reflecting continued organic growth in this part of the business.

“A better-than-expected result has seen ResMed shares up over 5% in on the ASX today market – with strong results across the board with US and ROW revenue up 11% compared with the previous corresponding quarter,” Power said.

Steady US sales momentum for ImpediMed

Device maker ImpediMed (ASX:IPD) reported its Q1 FY25 results with steady sales momentum in the US. IPD sold 28 SOZO units during the quarter, up from 23 in Q4 FY25 with 502 now installed in the world’s largest healthcare market and 1022 globally.

SOZO is the only US FDA-cleared, clinically validated bioimpedance spectroscopy (BIS) device for early detection and prevention of lymphoedema.

IPD reported unaudited revenue of $2.7m, down 7% on Q4 FY24 which was driven by lower rest of world (ROW) sales and some FX impact.

During the quarter interim CEO and managing Dr Parmjot Bains and interim executive director, chief financial officer and operating officer McGregor Grant were appointed for an ongoing basis.

“ImpediMed is building its businesses steadily in the US and we expect subsequent quarters to see an acceleration of that install base growth,” Power said.

“That is really the key for driving higher revenue and to get to its goal of breakeven over the next 12 to 18 months.”

Morgans maintains a speculative buy on IPD and has slightly reduced its 12-month target price from 20 cents to 19 cents.

ScoPo’s Powerplay – CSL ‘key part of clients’ portfolios’

CSL (ASX:CSL) is Power’s pick of the week with the blood-products giant holding its R&D investor briefing on Tuesday.

Morgans healthcare analyst Derek Jellinek covered the day and said CSL highlighted clinical progress, new areas of development and pipeline aspirations.

“Garadacimab US potential approval delay of at least six months was among only a handful of setbacks, whereas internal and collaborative efforts have spawned a broad clinical pipeline (21 programs), well-balanced across key therapeutic areas and platform technologies, with ~70% in mid/late-stage development,” Jellinek wrote in a note to clients.

Power said while there was not a lot of new news from the R&D day it showed the depth of CSL’s portfolio.

“They are working away on a number of different fronts and the key things to pick out is on their plasma business they’re looking to implement processes to help improve the yield,” he said.

Morgans has an add recommendation on CSL with a 12 month price target of $330.

“It is a key part of clients’ portfolios,” Power added.

ASX Health Care index

At 12.20pm (AEDT) on Friday the S&P/ASX 200 Health Care index (ASX:XHJ) was down 0.8% for the past five days, while the benchmark S&P/ASX 200 (ASX:XJO) fell 1.3% for the same period.

Research Corner: Dangerous bacteria uses ‘nano-weapon’ to spread

As concerns about antibiotic-super bugs continue, Monash university researchers have discovered how a dangerous bacteria found in hospitals uses a ‘nano-weapon’ to enable spread.

Published in Nature Communications, the Monash Biomedicine Discovery Institute (BDI)-led study investigated the common hospital bacterium Acinetobacter baumannii, which is particularly dangerous as it is often resistant to common antibiotics, making infections hard to treat.

The World Health Organization listed Acinetobacter baumannii as a top-priority critical bacterium, where new treatments were urgently needed.

Co-first author and BDI research fellow Dr Marina Harper said in many environments, A. baumannii must engage in bacterial warfare to survive in the presence of other species.

“To outcompete surrounding bacteria, A. baumannii (and many other bacteria) use a nano-weapon called the Type VI Secretion System (T6SS),” she said.

“This is a tiny needle-like machine that injects toxins directly into nearby bacteria, killing them so that A. baumannii can dominate.”

The study investigated how a key toxin, called Tse15, from a hospital strain of A. baumannii is attached to the needle and then delivered into other bacteria to kill them.

“By learning how this system works, we can explore new ways to fight against antibiotic resistant bacteria like A. baumannii,” Senior author and Associate Professor Sheena McGowan said.

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.

At Stockhead, we tell it like it is. While Aroa Biosurgery are Stockhead advertisers, the company did not sponsor this article.

Disclosure: The journalist held shares in CSL at the time of writing this article.