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Date : 21/02/2022

Monash IVF

ASX :

MVF

Market Cap : $436.91 Million

Dividend Per Share : $0.043

Dividend Yield : 3.89 %

Hold

52 Week Range : $0.67 - $1.145

Share Price : $1.105

The company continues to grow domestically and internationally - delivering growth and dividends to shareholders. We recommend a "Hold".

Company Analysis

Monash IVF (ASX: MVF) has always been one of those gems on the ASX that usually goes unnoticed. They have a solid business model, they are a leader in the reproductive and fertility services industry, and they consistently pay a very handsome dividend. Last week’s result was more of the same.

MVF delivered a strong 1H22 performance that has exceeded market expectations. The growth in earnings has been driven by strong industry growth and Monash increasing its market share.

  • Revenue increased 11.2% to $101.0m (1H21: $90.8m).
  • Adjusted EBITDA increased 8.5% to $26.8m (1H21: $24.7m).
  • $13.4m Adjusted NPAT, 11.7% above pcp and ahead of profit guidance provided in November 2021.
  • Interim dividend of 2.2 cents per share, fully franked and above the 2.1 cents per share declared for 1H21.

Flawless Operations

MVF has continued its strategy of investing in growth, adding four new domestic fertility specialists, expanding its service offerings and investing in new and updated clinical infrastructure and advances in technology.

Since 2018, Monash has improved its clinical pregnancy rates from 32.6% to 37.2% and focuses on scientific leadership to improve patient outcomes.

Their efforts and focus on growth have been rewarded with a market share increase in 1H22 of 0.7%, resulting in an overall market share of 20.8% in Monash’s key domestic markets. Positive industry momentum has continued this half, with industry volume growth at 3.6% and MVF recording above-industry growth of 6.6%.

Monash said that they continue to see a fundamental behavioural shift in the mindset of their patient cohort as they increasingly focus on family, health and wellbeing. This has resulted in an IVF baby boom as more people redirect their priorities towards family creation and extension.

With a well-aligned Strategy and a strong balance sheet, Monash can capitalise on the strong industry fundamentals and a growing pipeline of new patients.

Numbers Speak for Themselves

The Company delivered strong 1H22 revenue growth of 11.2% with total revenue of $101.0m as domestic stimulated cycles increased by 6.6%. Of the domestic stimulated cycle growth, new patients accessing Monash’s Network increased by 9%.

This, in addition to an 11% increase in 1H22 New Patient Registrations, is providing support for continued growth beyond 1H22.

The Company achieved an Adjusted EBITDA of $26.8m, up by 8.5%, noting volume leverage gained from increased domestic IVF activity, which was partly offset by:

  • Short-term margin declines were experienced in Ultrasound and Kuala Lumpur.
  • Additional costs related to the pandemic, including health & safety measures and protocols.
  • $1.0m increase in medical malpractice and D&O liability insurance reflecting appropriate insurance policies in the current settings.

Adjusted NPAT of $13.4m was ahead of the $13.0m guidance provided in November 2021 and 11.7% above pcp. Cash flow performance was strong, with Free Cash Flow increasing by 51.6% to $9.7m, driven by 83% cash conversion of EBITDA to pre-tax operating cash flows.

Capital expenditure of $3.6m was spent across key growth initiatives, including laboratory assets for capacity growth and expansion, a regular replacement asset program, a new clinic in Melbourne and IT infrastructure.

International Expansion Progresses Well

Monash’s South-East Asian (SEA) expansion strategy continued to progress in 1H22 despite COVID-19 challenges. Recovery is in progress at the Kuala Lumpur fertility clinic, with new patient consultations up to 29.2% compared to Q2 pcp following a weak performance in Q1.

In Q4FY22, a new IVF clinic in the highly attractive Singapore IVF market is opening with four new experienced fertility specialists attracted, and Monash anticipates 200+ cycles will occur in Year 1.

Additionally, a new Bali fertility clinic is expected to open by the end of FY22. These new clinics will complement Monash’s recent expansion in the SEA region bringing total SEA IVF clinics to 5 once completed.

Diagnostic Hiccup to Ease

The diagnostic segment has been impacted by massive disruptions in NSW and VIC due to the Omicron wave. As we enter a more Covid normal environment, we see the operating climate easing for Monash’s Diagnostic segment.

In November 2021, Monash IVF launched the first at home Reproductive Carrier Screening test. This allows anyone in Australia, not just IVF patients, to identify possible genetic conditions in a child before conception. This is a new non-fertility related patient recruitment channel supporting stimulated cycle growth into the future – complementing their existing business well.

Balance Sheet

The Balance Sheet continues to be in a strong position to support organic and non-organic growth aspirations, including building and refreshing Monash’s clinical infrastructure in Melbourne, Gold Coast, Brisbane, Darwin and Penrith, in addition to new markets in Singapore and Bali.

Day hospitals are being constructed in Melbourne and the Gold Coast, further diversifying revenue streams.

Outlook

Monash said it would continue to focus on initiatives that support future growth, including attracting new fertility specialists, opening new clinics, converting new and returning patient pipelines to treatment, improving pregnancy rates and patient experience, investing in marketing, and expanding our service offerings.

In addition, the focus remains on South-East Asia expansion plans. Given the impact of the Victorian elective surgery suspension in January 2022 and the general Omicron surge across the Australian Eastern States, financial performance in January 2022 has been adversely impacted in both the IVF and Ultrasound businesses.

However, as we have seen before since the start of the pandemic, these suspensions result in pent up demand for Monash’s services – leading to subdued material impact for the firm. With the growth in the industry and Monash continuing to push its boundaries by investing for growth, revenue and earnings can continue to grow in 2H22.

Our detailed earlier report can be accessed by clicking here.

Recommendation

Monash has operated extremely well throughout the pandemic. This has been another good result among a series of fantastic performances. The share price chart shows considerable growth during this time as well.

Dividends have consistently increased, and thus MVF has become an excellent source of growth + dividends. The outlook points to more of the same as industry tailwinds continue. We recommend investors “Hold” their positions.

 

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