Featuring prominently on the negative side last week were in vitro fertilisation service providers Virtus Health and Monash IVF after the former indicated industry growth is difficult rather than guaranteed. At least some investors had to recalibrate their views on this particular segment of an overall still popular healthcare sector.
In the good books
Generation Healthcare (GHC) was upgraded to Add from Hold by Morgans. Buy/Hold/Sell: 1/1/0 The company has entered the aged care market, acquiring three freehold aged care properties for $45.8 million. The acquisitions will be funded via a $52 million placement and rights issue. FY15 guidance has been reaffirmed. Morgans believes the stock offers a niche investment in defensive health care assets with strong recurring income streams.
Sunland (SDG) was upgraded to Add from Hold by Morgans. Buy/Hold/Sell: 1/0/0 The company has added to its South East Queensland portfolio with the settlement of Lakeview and the acquisition of a new site in St Lucia, Brisbane. Morgans rolls forward valuation with the target increasing to $1.96 from $1.92. Sales momentum is expected to be underpinned by a strengthening SE Queensland market and low interest rates.
In the not so good books
Alchemia (ACL) was downgraded to Reduce from Hold by Morgans. Buy/Hold/Sell: 0/0/1 The profit share from Dr Reddy’s for fondaparinx was below forecasts in the March quarter. Weak prices and higher rebates are the cause. Moreover, Dr Reddy’s wants to renegotiate the profit share arrangements, which adds uncertainty to the mix. Morgans downgrades to Reduce from Hold, pending more clarity on the issue. Target is lowered to 3c from 7c.
Monash IVF (MVF) was downgraded to Neutral from Outperform by Macquarie. Buy/Hold/Sell: 2/1/0Â IVF stocks are not proving as defensive as other healthcare peers which suggests a lower PE should be applied. In light of Virtus Health’s profit warning, the broker has downgraded Monash to Neutral. Earnings risk is provided by ongoing industry sluggishness, rising competition and difficulty in sustaining the pace of price increases, the broker warns.
Virtus Health (VRT) was downgraded to Neutral from Outperform by Macquarie and to Neutral from Buy by UBS. Buy/Hold/Sell: 2/2/0 Virtus has issued a profit warning for FY15, downgrading guidance by 10%. It seems a recent rebound in NSW IVF volumes has proven a false dawn, and market share is also being lost in Queensland and Victoria. Industry volumes are rebounding solidly yet Virtus is not achieving any leverage, suggesting it is failing to ward off the competition. While offering apparent value at current levels and despite appealing acquisition opportunities being available, Macquarie is worried the weak trend will continue into FY16. UBS is reducing FY15 forecasts by 7.5% to reflect the guidance downgrade, with the company now expecting a low to mid single digit growth rate.
FNArena tabulates the views of eight major Australian and international stock brokers: BA-Merrill Lynch, CIMB, Citi, Credit Suisse, Deutsche Bank, JP Morgan, Macquarie and UBS.
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