Healius offloads its radiology arm for $965m to focus on core pathology business
Sigma H1 FY25 results in line with expectations as countdown on for ACCC decision on proposed Chemist Warehouse merger
ASX health stocks fall in past five days as with broader market rises as investors given ‘reason to be more optimistic’
Healthcare and life sciences expert Scott Power, who has been a senior analyst with Morgans Financial for 26 years, gives his take on the ASX health care sector for the week and his Powerplay.
Labelled by Power in the past as an “underperformer” pathology giant Healius (ASX:HLS) had big news this week, announcing it’s sold its Lumos Imaging (radiology) arm to Affinity Equity Partners for an enterprise value of $965m.
Power said Morgans views the transaction as favourably priced with multiples at the high-end of industry norms with no impediments to estimated closing of the deal in Q1 CY25.
He said the view is the balance sheet will now be more secure, corporate costs materially reduced and excess capital flagged to be returned to shareholders in a “tax efficient manner”, although specifics are yet to be detailed.
“It looks like a reasonable price so the question becomes what are they essentially going to do with those funds?” Power said.
He said HLS has had a collection of businesses including IVF, day hospitals, GP practices and radiology that haven’t worked as a whole.
“Now its divested all that and gone back to a core pathology business.”
Morgans maintains a hold on HLS but has lifted its 12-month target price from $1.48 to $1.53.
Eyes on Sigma as ACCC Chemist Warehouse decision looms
Sigma Healthcare (ASX:SIG) has released its H1 FY25 results, as the countdown continues for competition watchdog the ACCC to announce its decision on the major pharmaceutical wholesaler’s proposed merger with unlisted pharmaceutical giant Chemist Warehouse, expected on October 24.
SIG took over the ~$2bn per annum supply contract of PBS medicines to Chemist Warehouse from EBOS Group (ASX:EBO) on July 1, 2024.
Power said H1 results were broadly in line with Morgans forecasts. Sales were up 9.4% to $1.8bn accounting for one month of the new CW supply contract and non-recurring revenue from its hospitals business, which sold in H1 FY24.
SIG said like for like sales increased by an average of 13% across its brands, Amcal and Discount Drug Stores.
“We think the merger will get through but that is key for this business going forward so we are just sitting back and waiting,” Power said.
“They also provided some updated information on Chemist Warehouse itself and they’ve had a very good year with profit before tax up 34%.
“When you put it together with Sigma there’s some nice cost synergies they can extract over the next couple of years and we think it will be a major retailing pharmaceutical fore in Australia.”
Morgans maintains a hold on SIG but has lifted its 12-month target price from $1.14 to $1.23.
Scott’s Powerplay: Percheron Phase 2 result
Percheron Therapeutics (ASX:PER), which is is focused on development and commercialisation of novel therapies for rare diseases in particular Duchenne muscular dystrophy (DMD) is Power’s pick of the week.
The company is undertaking a Phase 2B trial of its lead program avicursen (ATL1102) into non-ambulant boys with DMD, where a readout is expected before the end of CY25.
Avicursen is an antisense oligonucleotide targeting CD49d, a receptor involved in white blood cell activity and has shown effectiveness in multiple inflammatory conditions, including multiple sclerosis and DMD.
“This will be a key milestone for the business and if successful will see a rapid re-rating of the share price along with potential licensing deals,” Power said.
Morgans has a speculative buy on PER with a 12-month price target of $24 cents.
ASX Health Care index falls
At 11am (AEST) on Friday the S&P/ASX 200 Health Care index (ASX:XHJ) was down 0.2% for the past five days, while the benchmark S&P/ASX 200 (ASX:XJO) was up 0.2% for the same period.
However, Power said there was still reason for investors to feel more confident in the market moving forward.
“An interest rate cut in the US and confidence the US is not falling into recession along with some of the data coming out of China being a little more constructive recently has given investors reason to be more optimistic,” he said.
“It would feel like a bit of a rotation into resources and higher growth names which our sector is well-known for.”
Trends to watch: Capital raisings ‘picking up’
Power said there had been some capital raisings coming through with cardiac play EBR Systems (ASX:EBR) undertaking a fully underwritten Institutional placement and entitlement offer to raise ~$50m.
“There’s also been a couple of smaller ones announced to the market so it certainly feels like the pace of capital raisings is picking up and the appetite from investors is picking up,” he said.
Research… your feelings
And to finish off, some Aussie research. It seems acceptance may be the best way to help increase emotional wellbeing in uncertain times.
University of Adelaide’s School of Psychology Lecturer Ella Moeck led a study with colleagues from the University of Melbourne and Stanford University (USA) which tested effects of emotion regulation strategies used by students while they waited for and after they received exam grades.
“The key difference between waiting for exam grades and receiving them, is that while you wait, the outcome is uncertain,”Moeck said.
“The study examined the effects of six strategies – distraction, reappraisal, acceptance, expressive suppression, rumination, and social sharing – on positive and negative emotions.
“In the waiting period, rumination, reappraisal, expressive suppression, and social sharing were associated with higher negative emotions, acceptance was associated with lower negative and higher positive emotions across both time periods,” Moeck said.
“Accepting your emotions without judging them is becoming increasingly popular as an emotion regulation strategy, and our findings support this trend.”
You can read more about the study in the American Psychological Association journal Emotion.
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.
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