ScoPo’s Powerplays: A disappointing week for healthcare investors

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.
 

Themes of the week

Healthcare finished the week down 0.9 per cent, compared to the broader market which fell just 0.4 per cent. For the month the index was up 3.1 per cent for its best month since August; the All Ordinaries gained 3.9 per cent in April.

“It’s been sort of funny old market, I guess,” says Scott Power.

“We’ve had some pretty good quarterly results, but the share price has been a little lacklustre.”

Volpara Health Technologies (ASX:AHT) finished the week up just 0.4 per cent, to $1.33, despite the Kiwi breast cancer detection company reporting fourth-quarter results that Power called “solid”.

Cash receipts were up 15 per cent to $NZ5.4 million, with subscription-based receipts for the year up 39 per cent to $NZ18.3 million.

“To me, that’s a huge opportunity. If I’m seeing something that the market hasn’t quite cottoned onto, that makes me very excited,” says Power, who is naming Volpara as his “Powerplay” stock of the week.

“I’m happy to keep pounding the drum,” Power said.

“I think these guys are doing some extraordinary things with that while early detection of breast cancer, through all the screening and personalisation that are moving towards early risk assessment and genetics, and really trying to personalise the care for women, and that is now starting to translate into some pretty health annual recurring revenue growth and ARPU, average revenue per unit.”

Volpara’s ARPU increased to $US1.40, from $1.22. It’s annual recurring revenue as of March 31 was $NZ27.9 million, including 20 per cent organic growth.
 

Impedimed

It was the same story for Brisbane medical device maker Impedimed (ASX:IPD), which finished the week down 4.2 per cent to 11.5c, despite what Power called a “very strong quarter”.

“The key catalyst we’re waiting for is a major study, which is being reviewed by one of the major medical journals,” Power said.

The PREVENT study compares the use of Impedimed’s bioimpedance spectroscopy body-composition sensors with traditional tape measurements to prevent lymphoedema (limb swelling), a side effect of some breast cancer treatments.

“We’re hopeful that (study) will be published in May, and that’s going be very very important to the company. It’s been a long-awaited key catalyst, and it’s almost there.”

Morgans rates IPD shares as a speculative buy, with a 20c price target.
 

Mach7

Enterprise imaging company Mach7 Technologies (ASX:M7T) closed the week down 2.4 per cent to $1.23.

“Also had a quite solid quarterly result, and its share price has been quite underwhelming. But we remain very positive on the outlook for Mach7,” Power said.

Mach7 generated $8.4 million in cash receipts and had net operating cashflow of $3.3 million for the third quarter, with $12.8 million in new sales orders generated over the quarter, up from $7.6 million in the second quarter.

Morgans rates Mach7 as an “add” with a $1.68 price target.
 

ResMed

On the larger side of the sector, ResMed (ASX:RMD) fell 4.2 per cent on Friday to $26.17 after the $10 billion sleep apnoea device maker announced that third-quarter revenue had dropped three per cent to $US768.8m.

Sales of ventilators slowed and ResMed had put aside $US255 million to potentially settle a long-running dispute with the Australian Tax Office.

ResMed declared a US39c dividend, in line with Morgans estimates, but below the consensus expectations of a 40c per share payout.

Morgans rates ResMed an add with a price target of $30.09.
 

Some good news

There was some positive news for shareholders in Japara Healthcare (ASX:JHC), whose stock soared 26.5 per cent to $1.01 on Friday after the aged care provider received a tentative $278 million takeover offer from a Catholic rest home operator.

Little Company of Mary Health Care proposed paying $1.04 per share, a 30 per cent premium.

“The sector has underperformed the broader market over the last two years as a result of significant cost pressures,” Power wrote in a research note.

“Following the Royal Commission recommendation, it is expected that additional funding from the Government will be announced at the upcoming budget (in May).

“Consolidation in the sector was expected and is necessary.”

Japara’s directors are reviewing the offer and haven’t yet formed an opinion on it, the company said.

Also, capital raising have continued, with Exopharm (ASX:EX1) and Anteotech (ASX:ADO) both raising $12 million in recent days.

Overall, though, it was a disappointing week for healthcare investors.

“I was really keen on a number of these stories leading into the quarterly reports, because the indications were strong numbers coming through, and they did come through — but as I said, the share prices were lacklustre,” Power said.

“I think it’s just, investors have got so much to choose from, all these additional (capital) raisings coming through, it’s just not translating into the share price, plus this seasonal weakness coming in.

“I think people are a bit more cautious about these names.

“The upside to that is that we’re presented with very good buying opportunities because the share prices have dropped to our price targets. Plenty of upside, so that’s exciting.”

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.

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