Why the Virtus Health Ltd share price lost 7% on today’s results

The Virtus Health Ltd (ASX: VRT) share price fell 7% to $5.26 after the company released its annual results to the market this morning. Here’s what you need to know:

  • Revenue fell 1.8% to $257 million
  • Group earnings before interest, tax, depreciation and amortisation (EBITDA) fell 6% to $65 million
  • Net profit after tax (NPAT) fell 15% to $28 million
  • Earnings per share of 35 cents
  • Dividends of 25 cents per share
  • Net debt of $126 million

So what?

Much like Monash IVF Group Ltd (ASX: MVF) which reported yesterday, Virtus Health also reported a decline in overall market activity. Virtus reported that its total cycles fell 3.7% on a ‘like-for-like’ basis, however group cycles overall were flat due to new clinics and growth in Ireland.

Virtus continues to expand into ancillary services such as diagnostics and genetic testing, and the company may be able to grow further by expanding these services to all its clinics. However, there’s no getting away from the fact that business is sort-of cyclical (no pun intended) due to the fluctuations in demand for IVF. When the market is down, sales go backwards but costs (staff, rent, etc) remain relatively fixed, which can punish profits – as happened this year.

Now what?

The company continues to expand in new markets such as Ireland, Singapore, and Denmark, and the Irish segment grew strongly this year. As Virtus grows further overseas, results should hopefully become ‘smoother’ because the Australian segment will become a smaller part of Group operations.

Virtus carries a meaningful amount of debt, and my view is that growth would come to a stop if there was, for example, some sort of regulation that hurt its profits. Again that risk becomes less relevant with international expansion, and with a long-term trend towards increasing demand for fertility services, Virtus could prove a solid buy over the long term.

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Motley Fool contributor Sean O'Neill 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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