Why Monash IVF Group Ltd shares are sinking lower

The Monash IVF Group Ltd (ASX:MVF) share price has had a disappointing start to the week after the release of its half-year results…

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Monash IVF Group Ltd (ASX: MVF) share price has had a disappointing start to the week following the release of its half-year results. At the time of writing the fertility treatment company's shares are down 6% to $1.23.

For the six months ended December 31, Monash IVF posted earnings before interest, tax, depreciation and amortisation (EBITDA) of $20.8 million on revenue of $77 million. This was a 17.7% and 2.2% decline, respectively, on the prior corresponding period.

On the bottom line first-half net profit after tax came in 20.9% lower than the prior corresponding period at $12.1 million or 5.12 cents per share. Management has declared a 3.4 cents per share fully franked interim dividend, down 20.9% from FY 2017's interim dividend of 4.3 cents per share.

According to management, its performance has been impacted by operational challenges related to changing competitive dynamics, the impact of a high-volume doctor departure, and investments in building a strong foundation for the future.

During the half, Australian assisted reproductive services (ARS) fell by 10.5% due largely to lower activity in Victoria. This ultimately led to its share of the stimulated cycles market falling by 4% to 21.9% and segment revenue tumbling 3.4% to $73 million.

The main catalyst for the weakness in Victoria was the departure of its high-volume doctor, Dr Lynn Burmeister. Unfortunately, her departure from Monash IVF could continue to weigh heavily on the company for a little while longer. Last year management warned that when her non-compete clause comes to an end, it has the potential to cause a significantly negative impact to the company's profits.

One bright spot, though, was the company's International business. Supported by the move to its new premises in Kuala Lumpur, the segment achieved patient treatment growth of 17.1% and segment revenue growth of 25.8% to $3.9 million. International EBITDA increased by 49.5% to $1.6 million during the period.

Unfortunately, the second-half isn't expected to be any stronger than the first. Management expects full-year net profit after tax to be 25% lower than FY 2017. Management does, however, remain optimistic that the strategic roadmap it has developed will ultimately create sustainable shareholder value and deliver strong returns into the future.

Should you invest?

Whilst at 11x trailing earnings its shares do look cheap in comparison to Virtus Health Ltd (ASX: VRT), I am concerned that earnings could continue to slide lower in FY 2019 when Dr Burmeister's non-compete clause comes to an end. In light of this, I intend to keep Monash IVF on my watchlist and wait until it returns to growth before clicking buy.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Monash IVF Group Ltd and Virtus Health Limited. 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.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »