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Why the Monash IVF Group Ltd share price soared today

Monash IVF Group Ltd (ASX: MVF), saw its share price jump 18.3% today to $1.66, after a positive update to the market.

The company’s share price had gone virtually nowhere in the past month or year until today but did fall as low as $1.05 in August. At the time, a media article suggested a number of Monash’s doctors were concerned about patient care. The company responded that the report was actually incorrect, and the share price virtually recovered most of the falls overnight.

Getting back to today’s announcement, Monash says it is seeing a strong rebound in long-term Assisted Reproductive Services (ARS) market growth rates and a corresponding uplift in revenues and total patient treatments for the quarter.

Patient treatments are up 18.5% in the fourth months to October 15, compared to the previous period. That compares to the market growth of 5.6%. Monash has also seen its market share in ARS grow strongly.

As a result, Monash is forecasting reported net profit for the six months to end of December 2015 to be up 25% over the previous year.

Despite the rocketing share price, Monash shares are still trading on a trailing P/E ratio of 16.6x and sport a trailing fully franked dividend yield of 4.2%. That appears to be a cheap price for a company recording 25% growth in net profit.

In Vitro Fertilisation (IVF) is used by couples that are struggling to have a baby naturally, but the process can be very costly and time-consuming. One IVF cycle can cost $8,000 or more according to IVF Australia, and Medicare covers around half the cost of the procedure.

Competitor Virtus Health Ltd (ASX: VRT) also saw its share price jump 6.7% to $6.54, perhaps on the back of Monash’s news, and investors’ hope that the good news applies to both companies.

Virtus’ share price was hammered in early June after the company lowered its profit forecast for the 2015 financial year, impacted by slower cycle growth in NSW, weak conditions in other states and damage to one of its clinics.

One factor affecting Virtus’ earnings was the announcement by Primary Health Care Limited (ASX: PRY) in August 2014, that it would provide the first Australian bulk-billed IVF services, leaving patients out of pocket around $500 (after factoring in pathology and non-Medicare covered expenses).

That appears to have been a temporary speed bump, and patients appear to be at least returning to Monash IVF in numbers.

Foolish takeaway

Never underestimate the ability for high-quality service providers to charge a premium price for their services. And when it comes to IVF, potential parents want the best they can afford in most cases. Monash and Virtus certainly look poised to continue growing strongly and at today’s prices might represent an opportunity.

 

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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