ScoPo's Powerplays: ASX health stocks rise as 'Pro Medicus again hit the ball out of the park'

ASX health stocks rise 0.8% past five days as broader market lifts 3.7%
Morgans says ProMedicus ‘produced yet another record result’ with net profit of $82.8m in FY24
CSL falls on FY24 results but Morgans still bullish on ASX’s largest healthcare stock

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.

Do you have any health and fitness apps? Digital health tools such as mobile apps, websites, and text messages can significantly improve health and wellbeing by keeping people active, boosting steps, and improving diet and sleep, say researchers at the University of South Australia.

Researchers synthesised data from 206,873 people across 47 studies. The research identified consistent findings across different age groups, health behaviours, interventions, and health populations, indicating that digital health apps could help underpin broader public health campaigns.

The researchers found specifically, electronic and mobile health interventions can help people achieve:

1,329 more steps/day
55 minutes more moderate-to-vigorous exercise/week
45 minutes more overall physical activity / week
7 hours less sedentary behaviour/week
103 fewer calories consumed / day
20% more fruits and vegetables consumed / day
5.5 grams less saturated fat consumed / day
1.9 kilograms of weight loss over 12 weeks
Improved sleep quality
Less severe insomnia

Lead researcher Dr Ben Singh says with the rise of preventable chronic diseases like obesity, cardiovascular disease, and type 2 diabetes, finding mechanisms that can help reduce people’s risk is important.

“Our study found that digital and mobile health interventions can have a positive effect on people’s health and wellbeing, not only helping them to increase their physical activity and reduce sedentary behaviour, but also improving their diet and quality of sleep,” Dr Singh says.

“Given the wide accessibility and popularity of health apps, their capability to tailor information and deliver timely reminders and prompts, and scalability to diverse populations, they could be a very effective intervention to promote better health.

“Making positive changes to your health and wellbeing can be a challenge – it’s always easier to add kilos to your waistline, than it is to reduce them – but by incorporating digital tools into your everyday life, you’re more likely to achieve positive outcomes.”

To markets…

And ASX healthcare stocks look more like they’re reaching their health and fitness goals this week after a volatile couple of weeks.

At 11am (AEST) on Friday the S&P/ASX 200 Healthcare index (ASX:XHJ) was modestly up 0.8% for the past five days, while the benchmark S&P/ASX 200 (ASX:XJO) was up 3.7%.

“Investors have regained confidence in the US economy following encouraging consumer and labour data that helped ease recession worries,” Power says.

Earnings season continues to roll on, which Power says has been mixed for the healthcare sector along with reporting of key catalysts for companies.

“It’s a little crestfallen at the moment I would have to say,” Power says.

“It’s quite mixed and not really the way we’ve been anticipating reporting season or some of the catalysts to pan out but that is the name of the game.”

‘Pro Medicus again hit the ball out of the park’

In a note to client Morgans healthcare analyst Iain Wilkie says Imaging IT provider Pro Medicus (ASX:PME) “produced yet another record result”.

PME achieved a net profit of $82.8m in FY24, marking a 36.5% increase from the previous year.

Revenue grew by 29.3% to $161.5m, and its cash and equivalents rose by 27.9% to $155.4m with the company remaining debt-free.

The company declared a fully franked final dividend of 22 cents per share, bringing the total annual dividend to 40 cents, up 33.3%.

PME saw significant growth in North America, with revenue up 34.4%, and in Australia, up 5.9%.

However, European revenue decreased by 6.7% due to a one-off sale in Germany last year.

“We view PME as one of the highest quality businesses on the ASX with high margin and long contracted revenue base, providing significant baseline earnings support,” Wilkie wrote.

“While risks are heightened sitting close to all-time-highs, the demand for quality growth assets remains strong.

“Valuation remains the only concern here and we continue to wait for some share price weakness to add to positions.”

Morgans has a hold recommendation for PME and has increased its 12-month target price from $85 to $139.

“Pro Medicus again hit the ball out of the park,” Power says.

“We had a price target which was some distance below the current share price so Iain has ratcheted that up and it’s a first-class company that keeps delivering.

“So if you look forward to the next couple of years you can see 20-plus percent earnings growth coming through.”

Morgans lifts CSL target price despite selloff

The spotlight this week was on Australia’s biggest healthcare stock blood products giant CSL, which fell ~5% on Tuesday, after release of FY24 results.

“Their guidance was just a little below expectations and they saw a pretty big selloff in their share price,” Power says.

“However, interestingly two days later it is not far from where it was and has recovered some lost ground.”

CSL’s revenue for FY24 climbed 11% to $14.8bn, and NPATA increased 15% to $3.01bn. The company presented modest revenue growth guidance of 5% to 7% for FY25.

In a note to clients Morgans healthcare analyst Derek Jellinek says FY24 results were broadly in line with consensus, with double-digit underlying top and bottom line growth and strong operating cash flow.

“Strong plasma collections drove Behring sales (+15%), while Seqirus was soft (+4%) on reduced immunisation rates, albeit above market, and Vifor grew modestly given follow-on products in some EU markets,” Jellinek wrote.

He says notably, Behring gross profit margin expanded (+120bp, 50.3%), owing to a double-digit decline in cost/litre and numerous other initiatives, with ongoing gains expected and the return to pre-COVID margins (~58%) still targeted in FY26-28.

“While Behring should continue to do the heavy lifting, Seqirus and Vifor appear to be stabilising, making FY25 guidance (NPATA +10-13%) appear a bit conservative,” Jellinek wrote.

Morgans thinks CSL remains in good shape and one to buy on the dip, maintaining its add rating and lifting its 12-month target price from $315.35 to $330.75.

Cochlear results below expectations

Investors weren’t liking what they were hearing from Cochlear (ASX:COH), which its share price slump more than 7% on Thursday after FY24 results were below expectations, with underlying NPAT of $386.6m up 27% but at the low end of guidance of $385-$400m.

“Cochlear Implants (CI) slowed on lower emerging market tenders offsetting strong development market growth, although favourable product mix supported sales, while services moderated on waning Nucleus 8 (N8) sound processor upgrades and Acoustics surprised to the upside on solid Osia demand,” Jellinek wrote in a note to clients.

The hearing tech’s full year results showed sales revenue was up 15% to $2.26bn, with net profit up 19% to $356.8m from the previous year. Underlying profit rose 27% to $387m. The company’s underlying net profit margin was 17%.

COH provided FY25 guidance of NPAT $385-$400m, a 6-11% increase on FY24.

Morgans maintains a Hold rating on COH and has increased its 12-month target price fron $290.45 to $300.02.

Avita guidance down, but pipeline encouraging

Wound care company Avita Medical (ASX:AVH) announced its Q2 financial results.

The company reported commercial revenue of $15.1m in the quarter, a 29% on pcp, with gross profit margin of 86.2%.

During the quarter, the FDA approved the company’s RECELL GO treatment for thermal burn wounds and “full-thickness skin defects”, with the first case of using the treatment completed shortly after.

During the quarter AVH also submitted a premarket approval (PMA) supplement with the US FDA for RECELL GO mini, designed to address smaller wounds.

The company maintains Breakthrough Device designation ensuring a prioritised 180-day interactive review period and anticipates FDA approval by December 27.

AVH has downgraded FY24 revenue guidance, now expecting revenue to be between US$68-70m. In a note to client Wilkie says this implies ~14% downgrade from the lower end of previous guidance of US$78.5-84.5m to the new mid-point.

Morgans maintains an Add rating on AVH but has decreased its 12-month target price from $5.60 to $4.56.

“That one has been a bit disappointing for us because we’ve been pretty positive on it but they’ve had a couple of downgrades now,” Power says.

Power says upcoming catalysts which it has been highlighting for the last few months have also been disappointing.

“At the moment we’ve had a couple of misses and as we’ve said before we need success to draw investors into this space,” Power says.

Catalysts don’t play out as expected

Neuren Pharmaceuticals (ASX:NEU) has reported promising results from its Phase 2 clinical trial of NNZ-2591 for Angelman syndrome, a rare genetic disorder that mainly affects the nervous system and severely affects development.

However, Power says the positive results weren’t sufficient to offset weaker results coming out of NEU’s US marketing partner Arcadia for the sale of DAYBUE to treat Rett Syndrome.

“That share price is down more than 8% for the week so that is disappointing,” Power says.

He says Actinogen Medical (ASX:ACW) reported that its Phase 2a XanaCIDD trial for Xanamem did not meet the primary goal related to cognitive attention.

The trial found that Xanamem led to a clinically meaningful and statistically significant reduction in depression symptoms, measured by the MADRS scale.

However, the trial did not achieve its primary endpoint of enhancing cognitive attention, as measured by the “Attention Composite” of three Cogstate computerised tests.

“We were watching the Actinogen results and that was disappointing,” Power says.

Power says wound care company Aroa Biosurgery (ASX:ARX) has come under selling pressure this week after disappointing Q2 CY24 results coming out of its US distribution partner TELA Bio for its OviTex products.

Power says while TELA reconfirmed full year 2024 revenue guidance the market seems not convinced the company can deliver.

“The read through for ARX is they receive 27 cents in the dollar from TELA and a miss on full year revenue will flow through to ARX,” Power says.

ScoPo’s Powerplays – EBOS to report FY24 results next week

Pharmaceutical distributor EBOS Group (ASX:EBO) is due to report its full year results next week.

Power says EBO is expected to report EPS growth ~8% for FY24. EBO is forecasting a dip in earnings in FY25 through the loss of the Chemist Warehouse contract to Sigma from July 1.

However, Morgans expects that subsequent years will more than make up for that FY25 dip.

EBO also recently announced it increased its stake in software company MedAdvisor (ASX:MDR) to 9.8% after purchasing 27,527,196 shares.

EBO initially acquired a 14.1% interest in MDR in 2017, which it says has been diluted by subsequent share issuances.

MDR provides pharmacy-driven patient engagement solutions to help remove barriers of care. The company works with more than 33,500 pharmacies in the US to deliver programs to help patients take their medication safely and effectively.

“EBOS looks pretty good and we think the share price has recovered from a low base over the last month or so,” he says.

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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 author held shares in CSL at the time of writing this article.