What I like about Virtus Health Ltd shares

Yesterday, Virtus Health Ltd (ASX: VRT) which is Australia’s market-leading fertility services company released a trading update for the first quarter of 2017. Its fresh cycle activity is down 5.9% compared to the first quarter of last year, worse than the overall market which declined 3.5%. The company stated that its loss of market share was due to increased competition from a new entrant in Victoria.

Meanwhile, the company’s smaller operations in Ireland (where it is also market leader) and Singapore are doing well. Ireland grew 5.8% versus the prior period and Singapore generated its first profit.

The industry growth rate for IVF treatments in Australia was unusually strong last year at 8.2% compared to a long-term average of 4.1%. Therefore, weak market trends in the first quarter of this year may merely represent normalisation to historical rates. Furthermore, a single quarter is far too short a period to draw any solid conclusions about permanent changes to industry trends.

Listed competitor Monash IVF Group Ltd (ASX: MVF) also has a strong presence in the Victorian market. It will be interesting to see if it too has suffered from the new entrant to the state, but regardless it seems unlikely the company will repeat last year’s cracking results given the slowdown in the overall market.

The fertility industry should keep growing in future years despite last quarter’s blip given prevailing social trends and technological progression that is unlikely to reverse. However, this may not be a good thing for incumbents as it could entice further competition, as hinted by yesterday’s announcement.

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Motley Fool contributor Matt Brazier has no position in any stocks mentioned. 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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