MVF-AU looks fair value on my DCF/SOTP valuation. It is trading materially cheap vs VRT-AU on a simple FY15 price-earnings multiple basis.
Overall conclusion is presently HOLD on a long horizon basis.
looks like the market agreed with your above post. anything in particular happened in the last few days to cause the price jump?
Ladies and Gentlemen, the smart money is back. Shadow boxing.
No problem mate.
I should disclose that I am a shareholder. I do not want to be accused of "ramping".
May I ask, what do you mean by this:
Literally...shadow boxing. What I do when I'm rather happy about a development. It takes rather a bit. Jab-step-jab-step-cross-uppercut, a few other muay-thai things, round-house high kick...knock-out. Crowd goes beserk.
Then I sit down again.
Wife: "yeah, but it can go down as well".
Would a simple, "that's good" be too much to ask? Sheesh. Tough audience.
VRT-AU popped a bit in sympathy but the dispersion in value is declining. I can't make sense of its breadth.
Quick Take-outs:
+ Downgrade based on lower than forecast Assisted Repro cycles (ARS). Has every reason to rebound to historical norms unless infertile women have stopped wanting babies and/or men have stopped wanting to try put babies in them. I have no evidence of either.
+ Another explanation might be that ARS cycles are down because Fetal transfers (FET) are becoming so successful. Revenue per treatment is down because the mix of treatments is moving towards FET. Need to look into that. Management commentary from VRT-AU and MVF-AU makes no such statement, but they wouldn't.
+ Interesting that Propsectus measures looked primarily at revenue per ARS. Yet, in the HY release, more weight was placed on revenue per treatment. Not sure which is the best way to think of it.
+ Very large increase in Fetal transfers. Will result in a material increase in revenue per ARS cycle. This is a technological development which is unfolding.
+ They have termed out their debt via floating for fixed over half of the debt book. Reduces any concerns on debt sustainability. They have disclosed enough about their covenants to know what they are and how to calculate the main metrics. Thanks.
+ Competition from SA is dusted.
+ Diagnostics are doing well. They are the leader in the newest generation. VRT is in catch-up mode. This does affect ARS patient acquisitions.
Overall:
+ Pretty routine update with random pattern of movements to the downside on this occasion without any known reason why it would be a rebasing relative to an historical trend line.
+ Dividend is in-line.
Follow-up:
+ FET growth impact on ARS growth.
Other:
+ Not worth updating the valuation on present facts.
+ What is so magical about this $1.40 level that seems like a magnet to the share price??
Also until now I didn't realise there were such things as cyclical healthcare stocks, which are typically called "defensive", but there you go! So perhaps these ART stocks will come with greater share price volatility, but also greater opportunity to buy at a discount in short-term downturns.
DeepState,
Do you have any further thoughts on VRT as opposed to MVF?
Do you feel that MVF is a better play on this sector than VRT?
From my reading, VRT has the leading market share in Australia, with full service and low-cost clinics, the most fertility surgeons, as well as market leading positions in Ireland and a new clinic in Singapore, along with genetic diagnostic testing revenue and day hospital revenue (half of which are derived from non-IVF services). So wouldn't the market leading domestic position and perhaps more diversified earnings streams make this a better choice?
In terms of intrinsic value, my rough calculations suggest MVF is still under-valued, with VRT fairly valued in broad terms.
I also read a Bell Direct research report that mentioned VRT having more older surgeons, and the risk of their pending retirements, not sure if MVF have a higher proportion of younger doctors?
Announced that MVF has purchased Sydney Ultrasound for Women, a market leading imaging service.
Price up today despite going ex-dividend.
Was that purchased with debt? They were already geared to the hilt with almost less than 1 value for interest coverage.
Are you sure?
At half year interest expense was $2.4m. EBIT was $18.7m. That ratio is some order above 1.
OK, I hadnt looked at the H1 report, only the numbers for last FY, ratio was 0.95 and debt/equity was 76%.
I am not 100% certain why the numbers looked funny on last year's report. ...
Announced that MVF has purchased Sydney Ultrasound for Women, a market leading imaging service.
Price up today despite going ex-dividend.
Have not done a lot of work into VRT. Just looking at straight P/E, it doesn't make sense to me on face value in terms of the gap. Per prior posts, MVF-AU looks good for a long term position to me. I am concerned about FET technological progression and will need to investigate further.
Bigger is not necessarily better. It also depends on the price you pay for it. Having more non-IVF revenue still links on to getting the IVF patients in. They also come with higher proportionate costs than straight IVF. On this basis alone, I cannot make a judgment as to whether this is a good thing to pursue. It can also be replicated. MVF is growing in Malaysia and has the usual upside story. It is also branching into the same areas as per VRT-AU. There is a first-mover advantage in that territory is claimed and would become sticky. However, for the newer services, the field is pretty wide open.
From the MVF prospectus:
Relatively young, limiting retirement risk: Monash Group’s top five Fertility Specialists (in terms of Patient Treatment volumes) have an average age of 47, which is relatively young for the field of Assisted Reproductive Services. In FY2013, 66% of Monash Group’s Patient Treatments were also performed by Fertility Specialists under the age of 55. Monash Group’s younger Fertility Specialists are growing their Patient Treatment volumes at faster rates than average growth rates.
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