2 ASX healthcare shares I'm backing for strong growth this decade

I believe both of these ASX healthcare shares have compelling futures.

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Key points

  • Healthcare shares can be a good place to find defensive, yet growing, opportunities
  • Healthia is an allied health business which is growing through both organic revenue and acquisitions – profit margins are increasing as well
  • Private health insurer NIB is benefiting from Australia’s ageing population, increasing travel availability and more international visitors

The ASX healthcare share sector can be a fruitful place to find companies that are both defensive but also can grow for a very long time.

I think the industry has a compelling future with Australia's ageing demographic and the ongoing growth of the overall population.

With that underlying support for demand, I think the businesses that I'm going to write about have very promising futures through the 2020s.

Healthia Ltd (ASX: HLA)

Healthia is looking to become a large player in the allied healthcare space.

It has a few different divisions, including 'bodies and minds', 'feet and ankles' and 'eyes and ears'. That includes services such as physiotherapy, hand therapy, occupational therapy and speech pathology; podiatry clinics and retail footwear stores; optometry and audiology stores, as well as eye frame distributor AED.

The company is looking to grow its organic revenue by between 3% to 6% per annum, which can drive its earnings higher. In the FY23 first half, organic revenue increased by 5.4%.

Healthia is also growing through acquisitions, which is increasing its market share and scale. In HY23, for example, it bought 10 physiotherapy clinics and two hand therapy clinics.

HY23 saw 'underlying' revenue grow by 34.3% to $125 million, underlying earnings before interest, tax, depreciation and amortisation (EBITDA) grew by 48.2% to $18 million, and underlying net profit after tax (NPAT) went up 48.3%.

Ongoing revenue growth, combined with increasing profit margins, is very positive for the long term, in my opinion. The business has a market share of less than 3%, so there are plenty of future acquisition opportunities.

Commsec forecasts put the current Healthia share price at 9x FY23's estimated earnings.

NIB Holdings Limited (ASX: NHF)

NIB is an increasingly diversified private health insurance business.

It's best known for providing health insurance to Australian residents and visitors. But it's also involved in other areas, including health insurance in New Zealand and travel insurance. Plus, there's a division called NIB Thrive which is involved with NDIS plan management and support coordination.

The ASX healthcare share continues to see policyholder growth in Australia, which is helping drive revenue and earnings. People reportedly value health insurance more following the pandemic. NIB has outgrown the wider industry every year over the last 20 years, and it's expecting to keep outperforming the industry, according to the company.

The company is looking to expand its "value proposition and differentiate NIB in existing private health insurance markets by making membership as much about supporting good health as it is the treatment of sickness and injury".

The company plans to become a larger player with both its travel insurance and pursue NDIS opportunities. It has around 22,000 NDIS participants today, but it says it's on track to manage plans for around 50,000 participants by FY25.

The ASX healthcare share is expecting stronger travel earnings thanks to increasing levels of availability of travel options.

Plus, international student volumes are strongly rebounding, while international workers are returning in numbers as well, according to NIB. This can help its international inbound health insurance earnings.

Commsec numbers put the current NIB share price at 20x FY23's estimated earnings.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Healthia. The Motley Fool Australia has recommended Healthia and NIB Holdings. 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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