The Virtus Health Ltd (ASX: VRT) share price will be on watch this morning after the IVF provider released its half-year results for the six months ended December 31 2016.
Key takeaways from the release include:
- Half-year revenue fell 0.7% to $131.4 million.
- Earnings before interest, tax, depreciation, and amortisation dropped 12.3% to $31.7 million.
- Australian segment EBITDA down 13.1% to $33.9 million.
- Half-year net profit after tax down 17.6% to $14.7 million.
- Group cycles down 3.8% to 9,410. Fresh cycle activity in Australia decreased by 7.2% on a like-for-like basis.
- Earnings per share of 18.2 cents.
- Interim dividend of 13 cents per share fully franked.
Whilst a disappointing result was largely expected following the company's trading update at the end of January, I am a touch surprised by the extent of its drop in profit.
In light of this I would expect to see its share price drift even lower from here.
The reason for the decline is a drop in fresh cycle activity. Virtus' fresh cycle activity fell 7.2% on a like-for-like basis in Australia.
As well as Medicare reporting a 6% drop across the states that Virtus operates in during the period, the company lost market share to low-cost operators in Victoria and New South Wales.
The only bright spot was that its international operations remain strong. Its Ireland-based operations saw fresh cycles edge higher, resulting in a 3.5% increase in EBITDA. Fresh cycles also increased in its Singapore segment.
What now?
For the full-year management has reiterated its warning that should this volume shortfall continue, the company's full-year result would be materially impacted.
At 14x trailing earnings Virtus certainly does look cheap if the company can turn its performance around.
But unfortunately at this stage I'm not convinced the second-half will be any better than the first, so investors might want to avoid the company, and perhaps its rival Monash IVF Group Ltd (ASX: MVF) as well.
