Three stocks relating to healthcare sector

SomnoMed Limited

SOM Details
Strong Sales Growth in September: SomnoMed Limited (ASX: SOM) reported 16.9% growth rates in unit sales in the first quarter FY 17 ending September leading to 13.4% growth in the total revenues to $10.94 million. There is record September sales of more than 23.8% year on year despite the soft Northern summer months of July and August where there was growth of about 13.0% year on year. Moreover, the sales of new SomnoDent devices dominated by North American sales accounted for 56% of the total direct sales. All the new devices, Signature and Standard posted strong growth. The sales of Signature Fusion device grew by over 45% during the first quarter, and newly introduced SUAD™ devices posted 3% of total direct sales. In the new standard line of products Herbst Advance, the sales grew by 31% and Air device sales grew 44.7%. SOM has received the FDA 510k approval for its new instant fit SomnoDent Alpha device, which is a result of a two-year in-house development project. Going forward, for fiscal year of 2017, the EBITDA of core business is expected to grow by over 170% and by over 100% on underlying EBITDA of FY 16. In addition, in the first quarter of FY 17, the French government has announced new regulations that came into effect from November 2016. Under these regulations, COAT (device and fitting services) will be fully reimbursed and all diagnosed patients with mild and moderate conditions would be directed to use oral appliances as first line treatment in Europe’s biggest CPAP market. Accordingly, major growth could be witnessed in sales of oral appliances in France over the next few years. Moreover, SOM has a new entity Sleep Centers America, Inc. (SCA), while the planning and preparation for the opening of the first outlet scheduled at the beginning of 2017, are underway. The group reported for net cash from financing activities of about $1 million for the quarter ending September 30, 2016. SOM stock rose over 22.92% in the last six months (as of November 14, 2016), while we give a “Hold” recommendation on the stock at the current price of – $ 3.65

 
SOM Daily Chart (Source: Thomson Reuters) 

NIB Holdings Limited

NHF Details
Partnership with AA: NIB Holdings Limited (ASX: NHF) has launched AA Health, in partnership with New Zealand Automobile Association (AA) while the group would offer further layers of protection for the AA members and the public alike. In addition, AA has partnered with NHF to deliver three core products AA Health Everyday Cover, AA Health Private Hospital Cover and AA Health Private Hospital and Specialist Cover. Moreover, NHF has reported a 14.3% growth in the total group revenue of $1.9 billion in FY 16 and a 22% growth in the net profit after tax (NPAT) to $91.8 million. The group’s underlying operating profit (UOP) grew 49.9% to $132.02 million and statutory operating profit grew 47.9% to $120.8 million. Additionally, NHF is expecting a range of $130 million to $140 million (statutory operating profit of $122 million to $132 million) for FY 17, with investment income in line with internal benchmarks. On the other hand, NHF is facing pressures with high competition.

 

FY 16 Financial Performance (Source: Company Reports)
 
The private health insurance industry is undergoing a period of slowing claims inflation and slower than usual cost increases are reducing the amount of insurance payouts by health insurers. Moreover, NHF stock is trading at a high P/E, while we give an “Expensive” recommendation on the stock at the current price of – $ 4.80

 
NHF Daily Chart (Source: Thomson Reuters) 

Medibank Private Ltd

MPL Details
Underperformance of the Medibank brand and a slowing market in FY16: Medibank Private Ltd (ASX: MPL) reported a 46.6% growth in the group NPAT to $417.6 million in FY 16 primarily due to the improved operating profit of the Health Insurance business. MPL in health insurance has paid $5.1 billion on behalf of the customers and some challenges remain with the value MPL offers to the customers. However, MPL has experienced lower than expected growth this year due to falling hospital utilisation rates across the industry. The revenue growth continued to be subdued due to underperformance of the Medibank brand and a slowing market. The volumes for the Medibank brand were down, and are performing below peers in attracting new customers and retaining existing ones. In FY 16, MPL had implemented its new core policy management system, DelPHI. While there have been some initial implementation issues which have impacted the customer experience, MPL expects that in FY 17, DelPHI would be fully operational and customers will start to appreciate the benefits of the new platform. On the other hand, MPL will have a new Chief Financial Officer in the coming weeks. Additionally, in the first four months of the fiscal year, the revenue has been slightly below the initial expectations with premium revenue growth of 1.3%.

 

FY 16 Financial Performance (Source: Company Reports)
 
MPL expects the 2017 Health Insurance operating profit to be broadly in line with last year's result, excluding the 2016 claims provision release of $20 million, therefore Health Insurance operating profit is expected to be around $490 million. We maintain an “Expensive” recommendation on the stock at the current price of – $ 2.52

 
MPL Daily Chart (Source: Thomson Reuters)

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