Director buys can be a sign that those with the most insight into a company view its shares as undervalued. Here we take a look at 4 ASX healthcare shares with multiple recent director buys.
What is insider buying?
Insider buying is the purchase of shares in a company by an officer or executive of that company, such as a director. Insiders usually have exclusive insights into the companies they manage and are likely to purchase shares when they view them as undervalued.
Insiders must only buy based on publicly available information and must inform the ASX of the trade by lodging an Appendix 3Y. Depending on the circumstances, the purchase by an insider of shares can be seen as a vote of confidence in a business. Buys by multiple insiders can act as a stronger signal, as can larger, rather than smaller, share purchases.
Which ASX shares have had recent director buys?
CSL Limited (ASX: CSL)
Two CSL directors have acquired an aggregate of 349 shares in the company this month. CSL is a biotechnology company and one of the largest companies listed on the ASX by market capitalisation. CSL delivers biotherapies used to treat serious diseases as well as influenza vaccines.
CSL shares have fallen nearly 20% from their February high of $341 and are now trading at $279.12 (at the time of writing). Still, CSL shares are up 1.4% since the start of 2020 while the S&P/ASX200 Index (ASX: XJO) is down 27%.
CSL delivered a strong half-year result last month, but shares have declined in the period since in the general market chaos. CSL reported an 11% increase in net profit after tax (NPAT), which reached $1,248 million. CSL’s largest business, the immunoglobulin portfolio, performed exceptionally well with sales of Privigen and Hizentra up 28% and 37%, respectively.
Influenza vaccine sales increased 16%, although due to the seasonal nature of the business it is expected to post a loss in the second half. CEO Paul Perreault said, “CSL is well positioned for sustainable growth. Exceptional demand continues for our differentiated therapies.”
The company upgraded its profit outlook with NPAT for FY20 expected to be in the range of $2,110 million to $2,170 million at constant currency. This represents approximately 10% to 13% growth over FY19.
Estia Health Ltd (ASX: EHE)
Four Estia Health directors have bought an aggregate of 112,000 shares in the company this month. Estia Health is one of the largest providers of residential aged care in Australia. The company has 69 homes with 6,180 beds across Victoria, South Australia, New South Wales, and Queensland.
Shares in Estia Health have fallen 53% from a February high of over $2.40 and are now trading at $1.14 (at the time of writing). Earlier this month, Estia Health suspended its FY20 guidance due to heightened uncertainty surrounding the potential future impact of coronavirus.
None of the company’s homes had experienced cases of coronavirus or been materially impacted, nonetheless, Estia Health said, “Australia is experiencing an unprecedented public health crisis of unknown dimensions with economic and financial implications that cannot at this point be estimated.”
At 15 March, Estia Health’s occupancy within its mature home portfolio was 93.8%. The company said, however, that it was not possible to have a high degree of certainty about the impact the situation may have on future occupancy, revenue, and costs across its homes.
Estia Health said its balance sheet strength would allow it greater flexibility and depth of resource to meet challenges the crisis may present. Net debt on 13 March was ~$106 million with undrawn and committed facilities of ~$216 million.
Pro Medicus Ltd (ASX: PME)
Three Pro Medicus directors have acquired an aggregate of 72,499 shares in the company over the past couple of weeks. Pro Medicus is a healthcare imaging IT provider which provides a range of radiology software to hospitals, imaging centres, and health care groups.
Shares in Pro Medicus have fallen 33% from a February high of $27.30 and are currently trading at $18.29 (at the time of writing). The company released strong first half results last month, which saw revenues up 15.7% to $29.3 million. Solid growth was recorded in key jurisdictions of Australia, Europe, and North America.
Transaction revenue grew by 30% compared to the previous 6 month period. This revenue is recurring rather than one off, so provides a good base for growth in the second half and future periods. Pro Medicus was also able to grow its cash reserves by 20.2% to $38.8 million.
Underlying profit before tax grew 45.3% to $14.8 million while NPAT climbed 32.7% to $12.1 million. A fully franked interim dividend of 6 cents per share was declared, up 71.4%. Pro Medicus announced a share buyback this morning demonstrating confidence in its operations.
Polynovo Ltd (ASX: PNV)
Four Polynovo directors have acquired an aggregate of 922,500 shares in the company in March. Polynovo is a medical device company that sells NovoSorb BTM, an implantable dressing that can be integrated into the body as it heals.
Shares in Polynovo have fallen over 50% from a high of $3.12 in February and are currently trading at $1.54 (at the time of writing). In mid-March, the company announced it had completed a feasibility study assessing the safety and effectiveness of NovoSorb BTM in the treatment of full thickness burns. Results will be submitted to the FDA in April after which they can be publicly released.
In November last year NovoSorb BTM was granted a ‘breakthrough device’ designation by the FDA. The breakthrough device program speeds up the development, assessment, and review of designated devices to provide patients and healthcare providers with timely access to the devices.
CEO Paul Brennan said, “the results of the feasibility trial mean we are on track with the clinical program and excited by what lies ahead in the next few months.”
While a single director buy may not be telling, several can provide a good indication that those best placed to know consider shares good value.
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Kate O'Brien owns shares of CSL Ltd. and POLYNOVO FPO. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. The Motley Fool Australia's parent company Motley Fool Holdings Inc. recommends Pro Medicus Ltd. The Motley Fool Australia owns shares of and has recommended Pro Medicus Ltd. 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.