A new small-cap on our radar

Thursday, August 2nd, 2018

Over the past forty years, the average age of mothers giving birth in Australia has steadily crept higher from 27 to 31 years of age. The key reasons for this trend are typically intertwined and relate to shifts in social, educational and economic realities in recent years.

On average, young adults are staying at home longer, studying for greater periods and are buying their first home at an older age. One further consequence is that the average age of first time parents continues to grind higher.

While potentially difficult for the one in six Australian couples that now struggle to conceive naturally, this also represents an area of structural growth opportunity. Though we await the delivery of its full-year results with interest, due later next month, we believe one such opportunity may be that of specialist fertility provider Virtus Health (ASX: VRT).

With origins dating back to 2002, VRT listed on the ASX in 2013 and is today one of Australia’s largest assisted reproductive services (ARS) providers. VRT’s network includes 130 fertility specialists and over 1200 professional staff spread across an increasingly global footprint, one that now also encompasses clinics in Singapore, Denmark, Ireland and the UK.

While half on half IVF cycle trends have been volatile in recent years, the long-term trend of overall market growth remains. Over 23,000 IVF cycles were performed in Australia in the first-half of FY2018, which compares to the 20,750 performed in the first-half of 2013.

Despite subdued domestic revenue growth, VRT managed to deliver a sound first-half group result, with profit up 13 per cent to $16.6m. The key drivers of the improved performance largely reflected effective cost management as well as growth in diagnostics and international activities.

Looking ahead to the full-year result, due to be released in late August, consensus expectations are for VRT to deliver profit of about $32m, up about 14 per cent on FY2017. Further incremental organic growth coupled with recent international acquisitions underwrite expectations for further double-digit earnings growth in FY2019.

With growth in earnings and cash generation comes likely growth in fully franked dividends. We currently forecast VRT to deliver dividends of 31 cents per share over the coming 12 months, reflecting a solid yield of about 5.3 per cent, fully franked.

3 Responses to “A new small-cap on our radar”

  1. Kevin Tait says:

    Does Virtus bulk bill, or charge a premium? With the emergence of “free” IVF services from the public sector, others providers have lost both market share and margins. It is hard to justify paying $10-15k to the private sector without a very good marketing story. In Australia, private providers will struggle

  2. Greg Marusic says:

    I hold my CAM shares and Notes in my Netwealth super fund, and I enjoy reading your reports and attending John Abernathy presentations whenever he comes to Perth.Seeing you have researched the fertility sector, what do you think of Monash IVF prospects going forwards ?

  3. luke pearson says:

    ,hi ,how do you compare this stock to monash,mvf.regards luke.

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