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SocPo’s Powerplays: A few healthcare gems among the carnage
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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.
During his Australian Open quarterfinal defeat against Spaniard Rafael Nadal, Canadian Denis Shapovalov entered into a fiery mid-match rant, sensationally claiming the world number 5 receives “unfair” preferential treatment because of his standing in the sport.
Outraged Shapovalov accused chair umpire Carlos Bernardes of being “corrupt” in not penalising the 20-time Grand Slam winner for his time-wasting.
The Spaniard’s time-consuming superstitions and rituals are well-documented, among them taking a cold shower before a game, flicking his hair, tugging his underpants, and lining up his water bottles in a perfectly straight line.
But there were no superstitions, special treatments or rants which could save the healthcare sector’s game this week from turmoil which has engulfed local and broader equities.
While the broader market enters correction territory, down ~6.7% for the week and 10% for 2022, healthcare’s form was not any better with the index falling ~7.64% for the week.
Inflation concerns, fears of rate hikes, Covid-19, and threats of an outright Ukraine-Russian war have effected a broad selloff across markets.
And while Power was last week hoping for a rally in healthcare stocks after what he views as recent overselling, that hasn’t eventuated – yet.
“We were looking for a bit of a bounce in some of the names but as things transpired it absolutely collapsed over this past week,” Power said.
Themes of the week
Continuation in the sell-off has dominated the healthcare index this week.
“There’s very good places to hide in a broad sell-off,” Power said.
Oncology company Telix Pharmaceuticals (ASX:TLX) is down 11.81% as it finalised $175 million in a capital raise with their $7.70 placement price now ~$6.60.
“Telix has been one of the standout performers in life sciences over the past 12 months,” Power said.
“It’s a massive fall for investors that stumped up at that $7.70 price, but having said that, they are well capitalised to progress some of their clinical programs.
Small cap health imaging company Volpara (ASX:VHT), which specialises in the early detection of breast cancer, saw its share price tumble ~13.74%.
Brain-focused health company Neuren Pharmaceuticals (ASX:NEU) could not sustain its winning streak, with shares down ~20.7%. Last week Neuren lifted 6.8% after recently reporting positive results from a Phase 3 clinical trial of its lead asset Trofinetide against rare disease Rett Syndrome.
Imaging tech company Mach 7 (ASX:M7T) was also down ~13.6%.
Power’s Powerplay for last week, health imaging company ProMedicus (ASX:PME), also failed to hold back the carnage, down 8.22%.
Morgans has a 12-month target of $54.49 on the stock with it now ~$41.42.
Reporting season
While prices may be down, key metrics haven’t been for many healthcare companies reporting quarterlies and half-yearly results.
Among results standing out for Power was neuroscience technology company Cogstate (ASX:CGS), with revenue up 67% to US$29.6 million in H1 FY 2022.
Diagnostics company Genetics Signatures (ASX:GSS) reported revenue was up 16% to $22 million in H1 FY2022, while Atomo Diagnostics’ (ASX:AT1) revenue rose 33% to $7.7 million.
Internationally, IBM (NYSE:IBM) is selling its healthcare division Watson Healthcare for US$1 billion.
“This has been a chronic underperformer for IBM but the interesting thing is a lot of tech companies are moving into healthcare,” Power said.
“IBM have decided they’ve made a bit of a mess of it and are selling but a number of other tech companies are starting to explore and move into healthcare.”
Sales time
But while market confidence remains low and the sell-off continues, Power said now could be the time to look for quality healthcare companies at bargain prices.
“We still remain confident that’s providing some opportunities to look for some oversold stories and that’s really the theme of the week, looking for gems among the carnage,” Power said.
“Prices are down significantly and many companies are well below what we think is a fair price but it is what it is and the opportunity where the flaw is and the next catalyst to get them back in positive momentum.
“If we do see some stabilisation, then you will see a pretty good bounce.”
While not his Powerplay, Power thought cold cathode X-ray tech Micro-X (ASX:MX1) was worth mentioning.
While reporting a softer than expected Q2 FY22 this week, Power said the company has a promising outlook going for H2 FY22.
“They have been building up future sales and orders they will be able to deliver on, which is important,” Power said.
“They also have some pretty interesting X-ray technology they’re expecting to launch in the fourth quarter bomb detection technology which is one of their four growth platforms.”
He said at ~22 cents and with a Morgan’s target of 58 cents, there’s plenty of upside.
ScoPo’s Powerplays
The company Power thinks stands out this week and has been oversold within the market is Mach 7, which has reported positive quarterly results.
“They are like a mini Pro Medicus providing software to the hospital system, particularly radiology departments,” he said.
He said Mach 7 has been winning contracts, which should reflect in their metrics.
“They are due to report their results in the next week and at their AGM indicated things were going pretty well.
“We think they’ll have a positive quarterly set of numbers and as a result a positive six-month cash flow report with their half year report due in mid-February.”
He said Mach 7 has almost reached a point where it is too cheap.
“It’s literally trading on its 12-month low at around 66 cents so we think when they report it should result in the market starting to take notice of their performance,” he 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 financialproduct advice contained in this article.
