Are These Hot Health Care Stocks Changing The Trading Profiles- VHT, COH?

  • Oct 24, 2019 AEDT
  • Team Kalkine
Are These Hot Health Care Stocks Changing The Trading Profiles- VHT, COH?

Nowadays, technology plays a significant role in each sector of the industry. Introduction of information technology into the health care industry has created a revolution by helping in the detection and diagnosis of chronic diseases promptly as well as accurately. Precisely, digital health services have evolved as the biggest blessing for patients, doctors and scientists, making the health care industry a leader in innovation and economic advancements. In all the three lifecycle stages of a health care product that includes discovery, commercialisation and manufacturing, the Australian health care sector is on a strong growth track while also competing on a global scale. Having said so, the Australian Health Care Sector stands out as one of the fastest progressing sectors.

On 24 October 2019, the benchmark S&P/ASX 200 Health Care (Sector) index was trading in green, up by 237.2 points or 0.63% at $37,781.6.

In this article we would have a look at two ASX-listed health stocks, Volpara Health Technologies Limited (ASX: VHT) and Cochlear Limited (ASX: COH) that have recently seen rise and decline in their trading profile post-release of their respective latest ASX announcements.

Volpara Health Technologies Limited (ASX: VHT)

Based in Wellington, New Zealand and registered in Australia, Volpara Health Technologies Limited (ASX: VHT) is a MedTech SaaS company engaged in developing artificial intelligence algorithms assisting in early breast cancer diagnosis.

Volpara’s innovative technology and services are being used by global customers and/or research projects in around 38 countries, which is underpinned by several trademarks, patents, regulatory clearances including FDA clearance and CE mark.

The company raised $95 million since listed on the ASX in April 2016, with $55 million raised in June 2019. Volpara acquired MRS, at the end of Q1, a company based in Seattle, WA that provides mammography reporting systems to over 1,600 breast clinics and hospitals. It also provides Volpara with a much stronger US presence, experienced local headquarters, and accelerated sales through cross-selling opportunities.

Volpara

Volpara’s Business Standing at the end of the first quarter ended 30 June 2019. Source: Investor Presentation

Volpara released quarterly cash flow report for the second quarter of the financial year 2020 ending 30 September 2019. Let’s have a look at key highlights -

  • Group cash receipts from the customers for Q2 stood NZ$4.9M, increased by 190% compared to the corresponding quarter in FY19.
  • Reported, NZ$40.2 million net cash on hand at the end of the second quarter in comparison to $9 million reported at the end of the previous quarter.
  • Received NZ$4.5 million in early Q2, following the retail portion of capital raising in June. This mount was used by VHT to offset the cash expenditures for the current quarter.
  • Operating cash outflow for Q2 increased to NZ$4.2 million from NZ$3.0 million for Q1.
  • At the end of Q2 the VHT’s Annual Recurring Revenue (ARR) was NZ$15.7 million (equivalent to US$10.325 million), representing ARR growth in both Volpara and MRS. This ARR comprised of the revenue generated from the breast cancer software sale valued NZ$ 14.9 million (equivalent to US$ 9.8 million) and from the lung cancer software sales valued NZ$800K (equivalent to US$525K).
  • From the sales point of view, Q2 remained Volpara’s the weakest quarter. Addition of nearly $1 million in new ARR is highly encouraging.
  • Volpara continues to be on the right track to encounter its mid-range forecast for ARR for the year of NZ $17.1 million (US$11.5 million).
  • Volpara had forecasted that 27% of US women would apply group product on their data and images. The company remains on track in achieving this as well, providing a solid foundation for upselling Volpara’s full suite of products.
  • As per the current estimate, at least one of the Volpara or MRS product is being used by the paying customers, covering approximately 25.8% of screened US women (corresponding to approximately 10.1 million women).
VHT’s Stock Information

On 24 October 2019, VHT stock was trading at $1.705, up by 1.488% (at AEST 1:32 PM). The market capitalisation of the company stood at $366.34 million with ~218.06 million outstanding shares. VHT’s stock generated a YTD return of 53.77%.

Cochlear Limited (ASX: COH)

Australian-based health care sector company Cochlear Limited (ASX: COH) has a focus on bringing to market a range of implantable hearing solutions to global customers from the United States, Africa, Europe, Middle East and Asia-Pacific, delivering a lifetime of hearing outcomes.

Recently, Cochlear released 2019 Annual General Meeting Presentation, and the key highlights of the presentation are described in brief below-

COH’s Financial Achievements for the year 2019 ended 30 June

  • COH reported a 13% increase in net profit, amounting to $276.7 million in FY19, as compared to FY18. The net profit earned included $10.8 million net gain from the revaluation of innovation fund investments and excluding the revaluation, the net profit amounted to $265.9 million, reflecting an increase of 7%.
  • COH also reported 7% growth in sales revenue in FY19.
  • Dividend in the second half of the year was valued at $1.75, underpinned by earnings growth together with strong cash flow generation. The full year dividends increased by 10% to $3.30, which was fully franked.
  • COH’s continues to maintain the current dividend policy (renewed annually) to pay out around 70% of net profit as dividends.

COH’s strategic priorities

To retain market leadership with market-leading technology and world-class customer experience.

  • In order to retain market leadership, the company believes that R&D investments would strengthen its market-leading technology position. Since listing, COH had invested over 1.9 billion in research and development programs with a continued investment at ~12% of revenue.
  • COH’s has a market-leading portfolio with R&D product and services including implants & sound processors, sound coding and clinical & surgical tools.
  • COH’s focus for future includes hearing outcomes, hearing indications, lifestyle, connected care.

COH’s market-leading product portfolio. Source: Company Presentation

To expand the hearing implant market by creating awareness, market access supported by clinical evidence.

COH’s plans to improve awareness and access differ from segment to segment.

  • With current penetration of 3% within the adults and seniors developed market segment, COH intends to increase penetration with a goal to build a clear and consistent referral path and quality of life improvement.
  • With 60% penetration in Children Developed markets segment, COH plans to grow share with the key priorities including deeper penetration in US, France and Japan markets, increased rate of bilateral implantation and strengthening the treatment pathway for acquired or progressive hearing loss in older children.
  • With current penetration of 10% in Children Emerging markets, the company strategies to increase penetration, funding and affordability. The company foresees potential for long-term growth potential with the increase in wealth. Under this segment, COH’s prioritise to build awareness by running public campaigns, direct-to-consumer marketing, as well as hearing screening, to expand funding which would be driven by the compelling health economics of implantation in kids, to expand COH’s existence via building relationships with distributors accompanied by an expanding direct presence, and to develop professional capability by offering surgeon training and audiology education and lastly to maximise penetration through a tiered product offering.

To deliver steady revenue and earnings growth by investing and improving operational activities together with a strong financial position.

Under this, COH’s key investment priorities include multi-year investment in sales, marketing and R&D activities in order to build awareness and access. To deliver improved operational activities, the company aims to reinvest efficiency gains from growing scale into market growth activities. Optimising cost of production fortifies COH’s competitive position. Additionally, for maintaining a strong balance sheet position and continue to target a dividend payout of nearly 70% of net profit, strong cash flow generation funds investment is in progress.

Main Drivers for Revenue Growth

COH presentation

Source Company Presentation

COH’s Stock Information

Observing a decline by 0.84% COH’s share was trading at $201.77 on 24 October 2019 (at AEST 1:51 PM). The market capitalisation of the company stood at $11.68 billion with 57.81 million outstanding shares. COH’s stock generated a YTD return of 15.46%.


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