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Is this the best healthcare share after its Danish acquisition?

Investors seem to have really cooled on the assisted-reproductive businesses that are on the ASX. Indeed, Virtus Health Ltd (ASX: VRT) is down around 30% from its late-2016 high.

Today’s late announcement by Virtus could change the market’s opinion about the assisted reproductive services provider.

Virtus announced that it has acquired Trianglen Fertility Clinic in Copenhagen, Denmark for up to $43 million. The cash amount is roughly $30 million with the rest being paid through a loan note and earn-outs (paid with shares). However, those shares would be held in escrow for at least five years after the earn-out period.

It will be purchased at 8.1x FY18’s normalised earnings before interest, tax, depreciation and amortisation (EBITDA). The cash part of the acquisition will be funded with Virtus’ existing cash and debt resources. It’s predicted to be earnings per share (EPS) accretive in FY19.

This acquisition, combined with its Aagaard clinic in Aarhus, will mean that Virtus has a market share of approximately 15% of the Danish market.

Sue Channon, CEO of Virtus, said “The acquisition of Trianglen reinforces Virtus’ international growth strategy supporting our vision for diversification and the expansion of the Virtus model in carefully selected international markets.”

I believe the international side of Virtus is what sets it apart from many other healthcare operators on the ASX. Not only is it the largest provider of services in Australia, but it’s the biggest in Ireland. It also has a growing presence in Singapore and the UK, plus Denmark.

Ms Channon commented “Virtus will continue to seek value accretive opportunities to expand our network with leading IVF businesses in our target regions of Europe and Asia.”

Foolish takeaway

To me, this seems like a solid growth plan because the Asian market is so large. Europe is a big market too and has a low birth rate.

Europeans and Australians are both facing the prospect of trying have a children at an older age due to careers and the current high cost of living with housing. A lot of families delay having children until owning their own home, which is taking longer. Both factors are likely to mean assisted reproductive services are more likely to be needed.

Virtus is trading at 13x FY19’s estimated earnings with a grossed-up dividend yield of 6.7%. I’d be willing to put a small part of my portfolio into this globally-growing healthcare share, although I’d want to closely monitor any effects of low-cost competition.

Virtus isn’t the only one wanting to expand into Asia, this top share is just opening its first locations in the most populous continent.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has recommended 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 Scott Phillips.

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