Healthcare and life sciences expert Scott Power, who has been a senior analyst with Morgans Financial for 25 years, explains what the movers and shakers have been doing in health and gives his ASX powerplays.
Theme of the week
“The theme this week was really just a huge amount of merger and acquisition activities, and money flying everywhere,” Power told Stockhead.
We saw three major acquisition moves come into play, with CSL’s (ASX:CSL) takeover of Switzerland’s Vifor Pharma being the main headline.
Blood specialist CSL, which makes up a large part of the ASX Healthcare index, said on Wednesday it was buying out Vifor Pharma in an all-cash offer of US$179.25 a share, or US$11.7bn.
The company subsequently raised $6.3bn at $273/share in an institutional placement led by Bank of America and Goldman Sachs.
Power said the acquisition has made Morgans raise its 12-month target price on CSL from $324.4 to $334.7.
“The market may struggle with the rationale and wonder if the core plasma business is ex-growth, but we believe this is misplaced as this deal looks as unique as CSL itself,” Power said.
“The acquisition of Vifor has allowed CSL access to a defensible specialty product portfolio with strong market positions and growth opportunities, far from a typical pharma transaction.”
Vifor Pharma (SIX:VIFN) is a global specialty pharmaceutical company with a market cap of CHF9.1bn (US$9.9bn), and turnover of CHF1.77bn (US$1.9bn), focused on renal disease and iron deficiency via its partnerships and collaborations.
“We believe the plasma business is just going through short term COVID-induced supply chain disruption, but growth is likely to return to the high single digits,” said Power.
The other big acquisition news was Ramsay Health Care’s (ASX:RAM) takeover play on UK-based mental healthcare provider, Elysium Healthcare.
Upon the completion of due diligence, Ramsay will pay Elysium an enterprise value of £775m ($1.4bn) for 100% of its shares.
Elysium is a leading independent operator of long-term medium and low-secure hospitals in the UK, and has a strong partnership with the kingdom’s National Health Service (NHS).
Ramsay’s hospital network business has been severely affected by COVID lockdowns, and whilst that’s short term, Power reckons there are medium term risks inherent in Ramsay’s business model.
“The medium and longer term outlook is underpinned by an evolving integrated care operating model, requiring a material step-up in capex, which carries risk,” he said.
Meanwhile on Wednesday, fertility company Virtus Health (ASX:VRT) announced that it was being pursued by a buyout offer from BGH Capital.
BGH, which already owns a 9.99% stake in Virtus, now seeks to buy the rest of Virtus at $7.10 a pop, with VRT currently trading at $6.71.
“The play on Virtus really took us by surprise, we didn’t see that coming,” Power told Stockhead.
“I would describe $7.10 as a good opening bid. But as we know in these takeover plays, the first bid is rarely the last bid.”
“I think it’s somewhat opportunistic and at the same time strategic, given that BGH has recently tried to buy the Helius medical centers, so this was about expanding their healthcare portfolio,” said Power.
BGH will face a hearing from competition regulator ACCC on the Helius bid, with a decision likely scheduled in the next few months.
Power believes Virtus will benefit from Australia’s changing society towards having more babies through IVF cycles.
“The cycle numbers so far this year have been solid. What we understand talking to our industry contacts is the pipeline of IVF inquiries remains elevated. So that suggests to us that it’s going to be pretty good for the IVF operators.”
Power’s ESG insights for the week
Power points to work done by fertility stocks like Virtus and Monash IVF Group (ASX:MVF) in carrying out a mission that benefits the society as a whole.
“These fertility companies are doing very important work around genetic testing,” Power explained.
“They’re identifying potential diseases at the point of inception, and trying to stop these diseases from being transferred from one generation to the next.
“So I think that’s that’s a social area that’s very important from an ESG standpoint.”
Power’s stock of the week is IVF company, Monash IVF Group.
Monash recently posted strong FY21 results, with full year NPAT up by 61.5% to $23.3m.
Power believes that Monash will benefit from the interest around the IVF sector, as shown by Virtus’ recent offer.
“We view this as an industry-wide acceleration, and a shifting focus to families as a beneficiary of COVID.
“So we’ve adjusted our forecasts for IVF cycle growth to continue at sustained levels, and return to growth in FY23,” he added.
Morgans has 12-month target price on MVF of $1.09, against the current share price of 98c.
Monash IVF share price today:
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.
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