Virtus Health
About the author:
- Author name:
- By Scott Power
- Job title:
- Senior Analyst
- Date posted:
- 10 April 2014, 10:23 AM
- Sectors Covered:
- Healthcare, Life Sciences
The share price for Virtus Health (VRT) has fallen 13% since the release of its 1HFY14 results in late February. We have identified a number of perceived headwinds which in our view are being overplayed. As a result we see the current share price weakness as a buying opportunity.
The 1HFY14 results were broadly in line with our forecasts (although the mix was slightly different). Most importantly, the FY14 guidance was reconfirmed. As a result we have made no changes to our FY14 or FY15 forecasts or recommendations.
Perceived Headwinds
After discussions with management and a number of our industry contacts, we have identified three potential concerns for Virtus Health. We've highlighted these below and have included our responses to these concerns:
1. Possible entry of Primary Healthcare (PRY) into the IVF market
For PRY to make a reasonable impact we think they would need to aim for 10% market share or encourage 20-30 Fertility Specialists to join their network. Although we don't dismiss this we ascribe a low probability of attracting any of the VRT Specialists across, given the attractive and flexible arrangements offered.
We also query whether PRY has the appropriate infrastructure (andrology, embryology and diagnostic labs) to handle and offer low cost IVF services.
2. Possible float of the number two player Healthbridge
If Healthbridge were to list the pricing will be closely watched by the market. Healthbridge performs approximately 7000 to 8000 cycles pa (about 50% the size of VRT). We don't have any insight into the pricing of the (possible) offer, but will monitor with interest.
3. Possible changes within the upcoming budget which may impact the IVF business
The upcoming May budget is unlikely to have any direct effect on the IVF sector. Our industry contacts are suggesting the well-publicised $6.00 GP co-pay and medicare schedule freezes are possible outcomes.
Future upside for VRT
Since listing VRT has not made any acquisitions, but we see further upside from a move into an overseas region. We have prepared some work on regions with potential, and believe the UK, northern Europe and Singapore are attractive for investment.
More information
We retain our Add recommendation with a share price target of A$8.96.
Morgans clients can access our detailed research on Virtus Health (VRT). If you are interested in finding out more, please contact your nearest Morgans office.
Disclaimer(s): Analyst owns shares.
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