Monash IVF Group Ltd (ASX: MVF)



MVF Details

Mixed Performance: Monash IVF Group expects to drive earnings growth at both domestic and international level through a well-defined strategy. The group also intends to make an announcement during Q2FY18 for a new CEO and Managing Director. For FY17, MVF had reported for an increase of 2.9% in reported net profit after tax (NPAT) to $29.6m, however, revenues were 0.9% down at $155.2m. The profit was as per the guidance of February 2017 while a decline in patient treatments and associated revenues against strong comparative volume growth in the prior corresponding period (pcp) was noted. The group has migrated to in-house Non-Invasive Prenatal Testing (NIPT) under the “NEST” brand in November 2016, and this had given some advantage to the group. Other achievements during the year included rebranding of “Next Generation Fertility” clinic in Parramatta to “Monash IVF” under the group’s strategy to rationalise and consolidate brands. Group’s KL Fertility business in Malaysia also delivered strong growth of 10.1% in Patient Treatments.

Changes in market share: The group’s FY17 market share remained stable in Queensland and New South Wales but the entry of a low-cost competitor in the Victorian market led to a drop-in market share over pcp. The trend changed slightly in Q4 at the back of resilient premium brand and services. The group’s Australian Stimulated Cycles dropped by 3.1% while the Australian Market witnessed a decline of only 0.8%.
 


Stimulated Cycle Growth Rates (Source: Company Reports)
 
While various initiatives and strategies along with cost control measures are expected to drive some growth, challenges loom around the ARS industry growth rates and group’s performance in the sector. MVF stock has risen about 9% in last five days post falling about 20% in last six months (as at October 05, 2017). We maintain a “Hold” on the stock at the current price of $1.50
 
Virtus Health Ltd (ASX: VRT)



VRT Details

Domestic operations were a drag while international operations performed better:Virtus Health’s stock was removed from S&P/ASX 200 index effective September 18, 2017 at the back of challenges in the ARS market and performance related issues in FY17 owing to the core Australian fertility operations. The stock has thus fallen about 4% in last six months and rose over 3% in last one month, as at October 05, 2017. Primarily, FY17 revenue slipped by 1.8% while earnings before interest, tax, depreciation, amortisation and impairment were down 5.9% to $64.8m. The scenario improved a little in the second half of FY17 with growth in Diagnostics and international activities (international segment’s earnings before tax rose over 24%).

The overall market volume decrease of 0.2% was noted for Australian eastern state markets; however, growth improved in Queensland and Tasmania, and Virtus NSW clinics. Melbourne IVF was the key drag on group’s profitability for the Australian segment. On the other hand, performance in Singapore and Ireland boosted the international segment. Further, integration of the Aagaard fertility clinic in Aarhus Denmark delivered a solid result to add to earnings.

Given the mixed scenario with challenges in Australian market (reduced share and lower service volumes) but better performance in diagnostics and international front, we maintain a “Hold” at the current price of $5.63
 


FY13-17 Revenue and Earnings Trend (Source: Company Reports)

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