Scott Power: ASX health stocks up in ‘reasonable start' to reporting season
Avita downgrades FY25 guidance and announces $23 million capital raise
'Materially undervalued' CSL due to report FY25 results next week
Healthcare and life sciences expert Scott Power, who has been a senior analyst with Morgans Financial for 27 years, gives his take on the ASX healthcare sector for the week and his 'Powerplay' stock pick.
The ASX Health Care Index (ASX:XHJ) has risen 2.33% for the past five days, beating the benchmark S&P/ASX 200 (ASX:XJO) up 1.2% for the same period in what Morgans' senior healthcare analyst Scott Power has described as a "reasonable start" to reporting season.
In the large caps, US-focused radiology imaging house Pro Medicus (ASX:PME) jumped ~6% on Thursday after releasing its FY25 results, which co-founder and CEO Dr Sam Hupert dubbed 'the most successful year in the company's history by any measure'.
Pro Medicus revenue for FY25 was up 32% to $213 million with underlying profit before tax rising 40.2% to $163.3m and net profit up 39.2% to $115.2m.
The company achieved a record year for contract wins, renewals, and additional module sales. Cash and financial assets grew 35.5% to $210.7m, with ProMedicus remaining debt-free. A fully-franked final dividend of 30 cents per share was declared.
Morgans maintains a trim rating on Pro Medicus and has raised its 12-month target price to $285 from $280. A favourite among investors Pro Medicus is trading above that target at around $315.
"Pro Medicus reported a result in line with our expectations and the share price responded positively up with strong earnings growth forecast for FY26," Power said.
However, investors in Cochlear (ASX:COH) weren't tuning in to quite as positive news. The global hearing implant leader's FY25 results released today came in below expectations and its price fell ~2%.
Cochlear reported FY25 NPAT of $392m, which was slightly below consensus of $400m but within recently downgraded guidance of A$390–400m.
Revenue rose 4% to $2.356 billion, also slightly under expectations. Cochlear implants sales grew 12% to 53,968 units, slightly above consensus, driven by early access to the new Nucleus Nexa system in the EU and APAC.
Developed markets grew 6%, below expectations, while emerging markets surged over 20%.
Services revenue, which accounts for ~25% of total revenue declined 9% to $609m, impacted by slower uptake of the N8 sound processor launched in 2023 with US "cost of living" pressures flagged as a factor delaying the replacement cycle.
The interim dividend was $2.15, beating forecasts. Cochlear has provided NPAT guidance of $435m to $460m for FY26, slightly below consensus of $461m with Morgans forecasting $436m.
Avita bandages up after 'poor' Q2 result
Dual Nasdaq-listed wounds management house Avita Medical (ASX:AVH) posted what Morgans' healthcare analyst Iain Wilkie described as a "poor result" for Q2 CY25 and also announced a $22m capital raise.
Full-year 2025 revenue guidance was downgraded to a range of $76m to $81m compared to previous guidance of $100m to $106m, reflecting growth of ~19% to 27% over full-year 2024 revenue.
Avita revenue for Q2 CY25 of US$18.4m was flat QoQ, and up 21% YoY as demand for its flagship spray-on skin treatment Recell fell ~20% due to unresolved reimbursement issues with medicare administrative contractors (MACs) in the US.
Net loss for Q2 improved to US$9.9m, down from US$15.4m on pcp but according to Wilkie was "still insufficient to ease near-term cash flow concerns".
In a note to clients Wilkie wrote Avita must deliver US$20m per quarter in H2 CY25 to meet the lower end of guidance. Profitability timelines have now also been pushed, with cash flow breakeven expected in Q2 CY26 and GAAP profitability expected in Q3 26, both delayed by one year.
"A poor result, and confirms a structural delay in its breakeven trajectory, but we don't see this as a structural derailment," he wrote.
"Commentary around resolutions made in July as Medicare contractors initiate pricing and payments is a good sign this is reversing.
"Still, hard for investors to stomach yet another downgrade to guidance.
He said the key takeaway with Avita's latest results was the US payor system was complicated.
Meanwhile, answering concerns about its balance sheet Avita announced on Wednesday a $23m equity raising, by way of a private placement at $1.32 per share, an 11% discount on the previous close.
Although capital raising often drags on a share price, Avita's stock jumped as much as 13% as investors welcomed the added breathing room.
Morgans maintains a speculative buy on Avita but has downgraded its 12-month price target from $3.78 to $2.
EBR's WiSE finds its rhythm with early sales
Developer of the WiSE CRT System – the world's only leadless solution for pacing the left side of the heart, EBR Systems (ASX:EBR) has released its Q2 CY25 results, which was largely in line with expectations – per Morgans healthcare analyst Derek Jellinek in a note to clients.
Cash burn was down US$2m to US$11.5m, mainly on lower R&D spend with US$87m cash on hand, which Jellinek wrote was adequate funding for more than seven quarters at the current rate.
"Notably, June saw ~US$150k in first commercial sales from three WiSE CRT devices across two leading US hospitals, with favourable physician and patient feedback increasing despite no reimbursement, which is still expected later this year," Jellinek wrote.
"We continue to view the phased US commercial rollout, with limited market release in Q4 CY25 followed by full commercial launch in CY26, as prudent, balancing adoption with execution quality."
EBR was granted US Food and Drug Administration (FDA) approval for the launch of its Wise CRT system in the US in April. Morgans maintains a buy rating on EBR with a 12-month price target of $2.86.
Tetratherix gets government grant for manufacturing facility
Newly locally listed wound management company Tetratherix (ASX:TTX) has been awarded $3.3m non-dilutive grant from the Australian government's Industry Growth Program to co-fund its manufacturing facility expansion.
The funding will be spread across FY26 and FY27 with Tetratherix contributing to the balance of $4m. Following its ASX debut on June 30, the company allocated $10.2m from its IPO funds for manufacturing expansion.
The expanded manufacturing will enable the supply of product for the bone regeneration franchise which is on target for US FDA clearance in H2 CY 26.
Power said other upcoming catalysts for Tetratherix include a master service agreement executed with an orthopaedic company expected in H1 CY26. An update on recruitment in a pivotal trial for cohort two using its tissue healing product TetraDerm involving surgical incisions in face/neck is also expected also in the H1 CY26.
"Its clearly positive news for Tetratherix and we will assume that the saving in manufacturing will be re-allocated to funding other franchises including bone regeneration, tissue spacing, tissue healing," Power said.
"TTX's share price is up over 40% since the IPO and we expect the cadence of news flow to maintain investor interest over the coming quarters."
Power's Powerplay: 'Materially undervalued' CSL to report FY25 results
The ASX's largest healthcare company, CSL (ASX:CSL) is Power's pick of the week, with the blood products giant due to report its FY25 results next Tuesday.
In a July note to clients Power's colleague Jellinek wrote that CSL was currently trading at levels significantly below fair value, pricing it as less than a single-division company, with the main Behring division alone justifying a higher valuation and no value assigned to either Seqirus or Vifor.
Morgans 'view CSL as materially undervalued' and over the past decade the company had averaged an EV/EBIT multiple of 24.7 times but today it sits at 18.2 times.
Strong demand and cost-cutting measures have helped margins recover for CSL Behring, which focuses on rare and serious diseases such as bleeding and immune disorders and made up more than 70% of earnings.
Morgans noted CSL's flu vaccines business Seqirus faced short-term uncertainty around vaccine uptake and the impact of vaccine skeptic Robert F Kennedy Jr's position as Health secretary, but demand was still supported by pandemic contracts.
Growth in CSL's iron deficiency and kidney care business Vifor, while slower than expected was also showing signs of improvement.
"Combined, we estimate an intrinsic value of $196 bn, representing c35% upside from current trading levels," Jellinek wrote.
Morgans has a buy rating on CSL and 12-month target price of $303.70.
The views, information, or opinions expressed in the interview in this article are solely those of the interviewee and do not represent the views of Stockhead.
Stockhead has not provided, endorsed or otherwise assumed responsibility for any financial product advice contained in this article.
At Stockhead, we tell it like it is. While EBR Systems is a Stockhead advertiser, the company did not sponsor this article.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
News.com.au
an hour ago
- News.com.au
How spin king Shane Warne is saving thousands of Aussies
Shane Warne will be remembered as one of Australia's all-time sporting greats – but his greatest legacy may be saving thousands of lives. The spin king died suddenly of a heart attack while holidaying in Thailand in March 2022. His death shocked the nation and untold millions of cricket lovers across the globe. But it also spurred the launch of the Shane Warne Legacy, which over the summer rolled out a national heart health screening initiative. The foundation hopes that Warne's untimely death can be a catalyst for change and help Australians identify the warning signs. As part of the initiative, over 76,000 Australians were screened at pharmacies across the country and the Boxing Day Test. The results of the Monash University-led study, published in the Journal of the American College of Cardiology, have revealed that seven out of 10 Australians screened had at least one risk factor for cardiovascular disease. 'They identified thousands of Australians at risk, many of whom hadn't had a blood pressure check in the past year,' Dr Sean Tan said. 'Meeting people where they are, whether that's at their local pharmacy or the MCG, can make all the difference to health outcomes.' The checks found that just shy of 69 per cent of people had a risk factor for heart disease such as elevated blood pressure, being overweight or obese, or smoking. It also found half of the people with high blood pressure hadn't had a check in the last year. Helen Nolan, Warne's long-time personal assistant and now the CEO of the Shane Warne Legacy, said she hoped the leg spin great's death could be lead to change. 'Shane was loved by Australians from all walks of life and we knew we had a platform to do something meaningful,' Ms Nolan said. 'These results are bittersweet. We're proud to have helped thousands take their heart health seriously but we know there's still work to do. Shane would have wanted this to make a massive difference.'
News.com.au
2 hours ago
- News.com.au
Revealed: The suburbs where Aussie house prices are way off the mark
Australia's most undervalued and overvalued suburbs have been revealed, exposing areas where prices have either overshot the mark or remain lower than they should be and are due 'catch up' growth. Research from SuburbData showed most the overvalued and undervalued suburbs had varying history, but they were characterised by recent changes in supply and demand. This was coupled with major price differences between neighbouring areas with comparable housing. SuburbData analyst Jeremy Sheppard said overvalued suburbs offered a higher risk of new homeowners having to wait years to get growth on their investments, while those buying undervalued markets may get imminent equity growth. 'It may take a while till you get any growth on your investment in an overvalued suburb,' he said. 'Usually prices will level out over a few years but buying at the peak of a fast moving market could even mean, in extreme cases, that prices soon fall.' Mr Sheppard said knowing which markets were undervalued or overvalued was important in the current climate given how significant prices had become. Undervalued and overvalued suburbs differed across our major capitals: Melbourne as a whole was declared 'tremendously undervalued' and was due for stronger citywide price growth. Some of the most undervalued pockets of Melbourne included suburbs where prices had been kept down over many years by a slew of investment property sales from landlords exiting the market. Sales turnover has since slowed and the balance of demand and supply has changed – with areas like St Kilda West now among the most undervalued and beginning to pick up again. Whitefox chief executive and The Block judge Marty Fox said the relative affordability, especially the six-figure gap between St Kilda East and neighbouring areas, wouldn't last long. Other undervalued suburbs were Doreen, in the outer north, and Noble Park in the Dandenong area, along with a mix of suburbs in the Hume region and northwest Melbourne. Mr Fox said Melbourne as a whole was bouncing back. 'The gap between what buyers think property is worth and what it should be worth is the widest I've seen in years SYDNEY Prices in Sydney's most 'overvalued' suburbs were up to $250,000 higher than nearby, similar areas – often after years of rampant growth that outpaced the rest of the surrounding market. Such price gaps were unsustainable, according to the SuburbData research, with buyer demand now showing signs of dropping while the supply of available properties was soaring. Areas ranked among the 20 most overvalued Sydney markets were a mix of suburbs spread across the greater city area. They included developing suburbs around the coming Western Sydney airport, along with pandemic-era boom markets like the upper northern beaches and outer suburbs dominated by acreages and semirural properties. The Adelaide suburbs to target for future growth, and where to avoid to reduce the risk of overpaying, were a sharp contrast. The most undervalued, the report highlighted was Thebarton, with a median house value of $837,000 – about $132,000 below its neighbouring suburbs. Oakbank, Broadview, Clovelly Park, Camden Park, Cumberland Park, Brompton, Tonsley, Hove and Lightsview rounded out the top 10 most undervalued. LJ Hooker Mile End/Woodville agent Thanasi Mantopoulos said he felt Thebarton still had plenty of room for growth. 'We've seen houses in neighbouring Mile End and Torrensville now consistently break the $2m mark … the current record in Thebarton is $1.64m for a three bedder.' Vista, in the Tea Tree Gully council area, on the other hand, was identified as SA's most overvalued suburb, ahead of Woodville, Taperoo, Leabrook and Wayville and others. BRISBANE The research showed buyers could save over $400,000 by moving their home searches just a few suburbs away, in some cases. One of the suburbs offering the lowest prices relative to neighbouring areas was Fortitude Valley. Other undervalued suburbs were Alderley, Clayfield, South Brisbane and Hamilton. Areas were deemed undervalued if prices were lower than in neighbouring areas – without a reason explainable by geographic differences, such as a lower lying location or a lack of coastal access. Many of Brisbane's most overvalued suburbs were premium lifestyle suburbs that neighboured locations still undergoing gentrification.
News.com.au
2 hours ago
- News.com.au
Undervalued Melbourne suburbs set for major property boom
Melbourne is 'tremendously undervalued' and overdue for a boom, with new research showing which suburbs could be set for some of the biggest jumps. Experts are tipping this year's third Reserve Bank rate cut could finally be the one to turn the city's housing fortunes around, and areas like St Kilda East, Noble Park and Doreen are poised to get the best boost. The analysis from SuburbData tracked demand-to-supply ratios, price gaps with neighbouring suburbs, as well as the difference between house and unit prices to pinpoint postcodes primed for the next growth spurt. St Kilda East leads the pack, with typical house values a staggering $348,000 cheaper than nearby bayside postcodes. Noble Park and Doreen are also trading at steep discounts compared to their neighbours, despite strong transport, shopping and schooling options. SuburbData director Jeremy Sheppard said knowing where value lay in Melbourne's market was critical. 'Melbourne is tremendously undervalued … homes have become such an enormous investment … families need to be cannier about where they buy,' Mr Sheppard said. He added that undervalued suburbs were often those priced below neighbouring areas without clear geographic disadvantages, where growth had been lacklustre while nearby markets surged, and where buyer demand was now starting to outweigh supply. 'When buyers find better value for money in a market, that's when you get a feeding frenzy,' Mr Sheppard said. 'It may take a while till you get any growth on your investment in an overvalued suburb … buying at the peak of a fast moving market could even mean, in extreme cases, that prices soon fall.' Prominent Bayside real estate director Gary Peer said the median price in St Kilda East was 'heavily influenced by apartment sales'. 'St Kilda East is absolutely prolific when it comes to apartments, historically it's been a hotspot for investors,' Mr Peer said. 'But over the past few years, many investors have exited the market for a variety of reasons. 'The rapid rise in interest rates was a big one — though we're now starting to get some relief. Land tax has also bitten hard.' The Gary Peer Real Estate boss said the result of that investor exodus has been a shift in the buyer pool, and coupled with high numbers of sales it had led to softer price growth in the suburb. 'Compared to five years ago, prices in St Kilda East haven't climbed the way we might have expected,' Mr Peer said 'In some cases they've stayed flat or even gone backwards — and that's rare in Melbourne.' He noted that the suburb was still a 'premier address' and 'as affordable as St Kilda East is likely to be for years'. Whitefox chief executive and The Block judge Marty Fox said the relative affordability, especially the six-figure gap between St Kilda East and neighbouring areas, wouldn't last long. 'Historically, these kinds of disparities don't survive long once buyers start connecting the dots on lifestyle, transport, and amenity,' Mr Fox said. 'Once demand tips, you can see 10-15 per cent lifts inside a year, especially if there's a catalyst like infrastructure upgrades, a rate cut, or just the media finally catching on.' Melbourne's fundamentals are also likely to help drive prices up in undervalued areas. 'You've got population growth back at pace, rental supply at record lows, and construction costs pushing replacement values higher,' Mr Fox said. 'The gap between what buyers think property is worth and what it should be worth is the widest I've seen in years, and that's an opportunity for those who aren't scared to act before the crowd catches on.' Tuesday's interest rate cut, while important, was not the only factor in a boost to home values. 'Cheaper money acts like lighter fluid on buyer intent, but the spark will be confidence,' Mr Fox said. Areas where home values are significantly cheaper than neighbouring suburbs St Kilda East $1.2m – $348,000 cheaper Box Hill North $1.4m – $135,000 cheaper Doreen $788,000 – $49,000 cheaper Noble Park $794,000 – $42,000 cheaper Kings Park $682,000 – $39,000 cheaper St Albans $721,000 – $34,000 cheaper Deer Park $653,000 – $35,000 cheaper Officer $756,000 – $32,000 cheaper Westmeadows $765,000 – $6000 cheaper Mickleham $714,000 – $2000 cheaper
