Company Overview: Monash IVF Group Limited (ASX: MVF) is one of the top providers of assisted reproductive services (ARS) and women’s imaging and diagnostic services in Malaysia and Australia. The Group is a driving force in the expansion of assisted reproductive technologies (ART) and has its business located in ~109 locations, with 25 fertility centres and 17 Diagnostic sites. Further, the company has more than 222 staffs of specialists, sonographers, scientists, nurses, and counsellors.
MVF Details
MVF Rides on Robust Underlying Growth for IVF Services: Monash IVF Group Limited (ASX: MVF) is engaged in providing assisted reproductive services and ultrasound services. The market capitalisation of the company stood at ~$298.07 million as on 31 March 2021. Despite operational and financial challenges resulting from COVID-19 outbreak, the company remained on track to progress well on a number of significant growth initiatives in FY20. The initiatives include constructions of its latest flagship Sydney CBD fertility clinic, which opened in November 2020, distributing a best-in-class patient experience, and its international investment with the procurement of KPJ Johor Specialist Hospital Fertility Business in Malaysia.
During 2020, the company’s future growth and progression plans were substantially bolstered, thanks to the participation of 12 specialists in MVF’s fertility traineeship program, and eight novel hired fertility specialists joining Monash IVF Group. Through close partnership with its fertility specialists and people, the company has come out stronger from COVID-19 impact, with more resilient and strong growth momentum. The company has been witnessing early signs of recovery with pent up patient demand post the resumption of IVF treatments. The company also saw positive domestic stimulated cycle growth in Q2FY21. Notably, stimulated cycles went up by ~23% in 2QFY21, up from a growth of only 6.5% in 03FY19, demonstrating strong underlying growth for IVF services. Further, stimulated cycles across Australia witnessed an increase of 21.7% in 1HFY21, bringing the 3-year CAGR to 3.3% and 5-year CAGR to 2.8%. This reflects positive operational momentum and a successful recovery after the COVID-19 suspension as the company remained on track to continue the momentum of its strategic plan, with improvements in science, patient care and services.
Stimulated Cycle Highlights (Source: Company Reports)
1HFY21 Key Highlights: MVF declared its half-yearly results, wherein the company reported revenues of $90.8 million, as compared to $77 million reported in the year-ago period, depicting an increase of 17.8% year over year. Adjusted EBITDA for the period came in at $24.7 million, up by 24.4% year over year. Adjusted net profit for the period came in at $12 million, up by 32% year over year. In 1HFY21, the company witnessed an increase of 27.4% year over year in Monash IVF Australia stimulated cycle, owing to the recovery of pent-up demand formed during momentary postponement of services in fourth quarter FY20. The company witnessed a national industry growth of 20.6% in 2QFY21 as well as market share gains across VIC, NSW, QLD, and NT, which resulted in an increase of 33.1% Monash IVF Australia stimulated cycle growth in Q2FY21. Notably, the company’s Ultrasound businesses continued to be operational during the COVID-19 led pandemic and reported ultrasound scan growth of 11.7% in 1HFY21. The company also remained on track to make robust progress in its Southeast Asia expansion plan.
1HFY21 Key Highlights (Source: Company Reports)
Top 10 Shareholders: The top 10 shareholders together form around 59.96% of the total shareholdings, while the Top 4 constitutes the maximum holding. BlackRock Investment Management (Australia) Ltd. is the entity holding maximum shares in the company at 13.35%. Allan Gray Australia Pty Ltd is the second-largest shareholder, with a holding of 13.31%, as also highlighted in the chart below:
Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group
Key Metrics & Liquidity Position: At the end of 31 December 2020, the company’s cash balance stood at $7.6 million. Net debt at the end of the period stood at -$0.5 million, against $4.2 million at the end of 30 June 2020. This implies net debt has decreased by $4.7 million, owing to robust operating cash flow and free cash flow. At the end of 31 December 2020, gross borrowings stood at $7.1 million, which was reduced by $12.2 million from $19.3 million reported at the end of 30 June 2020. Notably, the company has ~$32.9 million of debt capacity existing under the Syndicated Debt Facility, due to maturity in January 2022. Operating cash outflow for the six months ended 31 December 2020 came in at $20.8 million, up a whopping 92.6% year over year, aiding the company well for future organic and in-organic growth. During the period, the company declared an interim dividend of 2.1 cents fully franked, with a payment date of April 7, 2021.
In 1HFY21, gross margins, EBITDA margins and net margins came in at 88.1%, 27.2% and 16.2%, respectively, higher than the respective industry median figures of 42.7%, 16.5% and 3.8%, respectively. The company reported negative cash cycle days of 263.5, as compared to the industry median of 1.1 days. Debt to equity in 1HFY21 stood at 0.16x, lower than the industry median of 0.34x.
Profitability and Leverage Profile (Source: Refinitiv, Thomson Reuters), Analysis by Kalkine Group
Key Risks: On the flip side, stiff competition from peers, COVID-19 led uncertainties and the global threat environment remain potential headwinds. The company’s business, financial and operating conditions highly depends on general economic conditions and spending powers of customers. If such circumstances worsen, it may negatively impact the overall financial performance of the company. Notably, the stock of MVF is currently trading at higher levels though it has corrected by ~6% from its 52-weeks high of $0.84. Hence, looking at the overall scenario, any major upside in the stock price seems capped. Further, lower investment in generating working capital requirement exposes the company to liquidity risk. Further, there is always a risk that the Commonwealth government will change the funding it offers to ARS, including the Medicare Benefit Schedule and Extended Medicare Safety Net. This change might have an adverse impact on its business aspects.
Outlook: MVF expects adjusted NPAT to be in the range of $21 million to $23 million, as compared to $14.4 million reported in FY20. Reported NPAT is expected to be in the ambit of $23.7million to $25.7 million, as compared to $11.8 million reported in FY20. The company continues to progress its R&D and commercial activities in the prevailing environment of COVID-19 outbreak. The company is also taking necessary measures to grow organically in the short term, improve operational efficacy, thereby striving to be a top provider of assisted reproductive services. MVF’s decent balance sheet, positions it well to navigate through the COVID-19 pandemic and result in new sources of revenue for the company in the near future.
Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)
Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group
*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.
Stock Recommendation: Currently, the stock is trading above the average of its 52-week’s high and low level of $0.84 and $0.396, respectively. The stock of the company went down by ~1.3% in the past three months. On a technical analysis front, the stock has a support level of ~$0.684 and a resistance level of ~$0.983. We have valued the stock using an EV/sales multiple based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). We believe that the company might trade at some discount as compared to its peer median, considering higher operating expenditure, higher trading levels, low ROE, stringent regulations, and global threat environment. For the purpose, we have taken the peer group - Virtus Health Ltd (ASX: VRT), Healius Ltd (ASX: HLS), to name a few. Considering decent top-line performance, cash management activities, decent long-term outlook, and improved operational efficacy, we recommend a “Buy” rating on the stock at the current market price of $0.79, up by ~3.267% as on 31 March 2021.
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MVF Daily Technical Chart (Source: Refinitiv, Thomson Reuters)
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