06/09/18
MVF
A$1.18
A$1.40
BUY
Source: Bloomberg
Company Description
We rate MVF as a Buy for the following reasons:
We see the following key risks to our investment thesis:
Figure 1: MVF Treatment Numbers
Source: Company
Despite posting falling headline numbers across the board, Monash IVF Group’s (IVF) FY18 results came largely in line with consensus estimates and within management guidance.
Revenue was down -2.9% to $150.6m, EBITDA dropped -22.2% to $38.1m, while NPAT slumped -27.9% to $21.4m. As has been the case for a number of results now, domestic performance continued to drag on what was otherwise a stellar result for MVF’s Asia Pacific business.
Total International Patient Treatments were up +24.2% on the back of improved market share in Malaysia, reaffirming our confidence in the business model amid a time of wider Group turnaround. Indeed, the departure of key specialist Dr. Lynn Burmeister in Victoria, saw Group revenue decline by -$12.3m over the fiscal period – proving to be an issue, which management admits will affect 1H19 performance.
However, looking towards FY19, the Company is anticipating NPAT growth that will be supported by new doctor arrivals and “strong momentum in South Australia, Ultrasound and KL”. On our numbers, MVF trades on 12.7x one year forward price to earnings and 5.0% dividend yield – reiterate long term Buy (though we note we expect some short term weakness)
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Figure 2: MVF Results Summary
Group revenue – Australia continues to drag. MVF’s Group revenue was down -2.9%, attributable to the Australian business which saw its ARS market decline (-$1.9m) and a specialist departure (-$12.3m) hurt the top line significantly. Total IVF Patient Treatments fell -9.4% to 14,553, with significant contractions being noted in Cancelled Cycles (-17.8%) and Stimulated Cycles (-11.9%). On the analyst call, while management did detail the significance of Dr. Lynn Burmeister’s departure, they were quick to note solid long-term performance as well.
International. Despite remaining the smaller contributor to earnings (9.9% of Group EBITDA), the International segment remains MVF’s outperformer and key to a turnaround story. Overall international patient treatments were up an impressive +24.2%, with strong growth contributing from additional specialists in Malaysia, clinic expansion and incremental volumes. Pleasingly, EBITDA increased by +50.2% to $3.77m (from $2.51m), with margins also increasing to 43.0% (from 40.3%) as additional volumes helped leverage the segment’s cost base.
Operating expenditure increases. MVF’s Group cost base increased significantly to $112.5m (from $106.3m) over the period, contributing to EBITDA margin contraction to 25.3% (from 31.6%). Significant expense increases included; inflationary cost impact from Scientific Enterprise Agreement and property increases ($1.7m), Malaysian clinic expansion ($1.3m), and one-off costs associated with executive recruitment, legal cases and restructuring activities ($1.2m).
Figure 3: FY18 Revenue Analysis
Dr. Lynn Burmeister’s departure was a significant drag on MVF’s revenue over the period, with associated patient referrals dropping as a result. Management note that they were able to retain 1-in-3 of Dr. Burmeister’s patients initially, however this number has dropped (1-in-5) in more recent times as the specialist gained momentum and started operating in the Victorian market. While this was a top concern for many of the analysts on the conference call, management reiterated their priority on expanding the overall market in Victoria, rather than spending effort trying to recuperate these lost patients. MVF’s key strategy here is their premium product offering (high intervention), which management detail is more profitable and sustainable.
Figure 4: IVF Treatment Numbers Breakdown + Non-IVF treatment numbers
Figure 5: MVF Financial Summary
Source: BTIG, Company, Bloomberg
Monash IVF Group Ltd (MVF) offers assisted reproductive technology services, ultrasound services, gynaecological services, in-vitro fertilisation services, consultancy services and general clinical services to patients in Australia and Malaysia. MVF comprises 40 clinics and ultrasound practices and employs ~100 doctors and has a network of 650 associated health professionals.
1st March 2020
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25th September 2019
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