Virtus Health Limited (ASX: VRT)

VRT Details

The company is engaged in the provisioning of fertility services, medical day procedure services and medical diagnostic services in Australia, Denmark, the UK, Ireland and Singapore.

Acquisition offers from BGH Capital: Recently, the company has received an unsolicited, non-binding indication of interest from BGH Capital Pty Ltd for the acquisition of 100% of the issued, and to be issued, shares of Virtus via a scheme of arrangement at a cash value of $7.10 cash per Virtus share. The proposed price will be decreased by the value of any dividends, or other distributions declared, proposed or paid after 14 December 2021. However, the company has advised its shareholders to not take any action in relation to the proposal at this stage, and there is no certainty that the proposal will end in a transaction.

Financial and Operational Highlights: Backed by robust performance in Australian and International operations with ARS recovery and progressive market growth, VRT witnessed growth in revenue to $324.6 million as compared to $258.9 million in FY20. Reported EBITDA and NPAT for the year amounted to $93.4 million and $43.1 million against $46.2 million and $0.5 million in FY20, respectively. The company’s operational and financial performance could be impacted by the rising market share of competitors as it operates in a very competitive environment. VRT is exposed to a more complex regulatory environment as it is currently surviving a legal case filed by ACCC in relation to the proposed acquisition of Adora Fertility and three-day hospitals (Acquisition). For FY22 and FY23, the company would be focused on numerous growth investments, which mainly include developing the Precision Fertility™ Digital Platform and building Reproductive Genetics capability.

Revenue Trend (Source: Analysis by Kalkine Group)

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

Source: 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: The stock of VRT is trading above its 52-week low-high average of $4.940 - $7.470, respectively. The stock has provided returns of ~23.59% and ~14.45% in the past one and three months, respectively.  The stock has a support and resistance level of $5.91 and $7.37, respectively. The stock has been valued using a P/E multiple-based illustrative relative valuation and arrived at a target price with a correction of high-single-digit (in % terms). The company can trade at a slight discount to its peers’ average P/E multiple, considering the COVID-19 uncertainties, and regulatory risk, etc. For the purpose of valuation, peers such as Monash IVF Group Ltd (ASX: MVF), Healius Ltd (ASX: HLS), Regis Healthcare Ltd (ASX: REG) and others have been considered. Considering the expected correction in the valuation, solid rally in share price in past months, current trading level, and key risks associated with the business, we suggest investors to book profit and give a ‘Sell’ rating on the stock at the closing price of $7.01, up by ~34.548% as on 14 December 2021.

VRT Daily Technical Chart, Data Source: REFINITIV 

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

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