Long time watcher of MVF here. Was an investor for ~4 years in...

Long time watcher of MVF here. Was an investor for ~4 years in Virtus Health prior to its takeover offer which generated a solid return (80%+ nominal return + 4% p.a. yield).

I've purchased a significant stake of MVF today at 62 cents following the recent emotion fuelled sell-off by Mr Market. My investment thesis:

- In terms of the business model, MVF has delivered consistent growth in revenues and margin expansion in the past 5 years. This is despite publicised challenges and inflationary pressures. Ultimately a growing number of clients continue to choose Monash's IVF services and the company his able to leverage pricing power and economies of scale to deliver top-line revenue growth and margin improvement. MVF has delivered FY24 revenue growth of ~19.6% and Underlying NPAT growth of ~17.4% with revenue growing at 15% CAGR FY20-FY24. In addition, MVF has been actively taking market share from competitors with ~21.7% of the AU cycle market (+1.5% on FY23). This robustness is in variant perception to the consensus view that the business is in structural decline priced into the market
- MVF has a robust return on equity (~12.1 in FY24%), highlighting MFV is deploying shareholder funds effectively to generate returns.
- MVF has a well capitalised balance sheet (debt to assets at ~30%). This gives it flexibility to fund its capex program and divvies
- MVF has grown operating cashflow from $27m in 2020 to $50m in 2024. This represents a 17% CAGR. Cash is king!
- Current valuation is at a significant discount to market and healthcare segment. Market cap implies a 8.0X Normalised P/E LTM and 8.8X Normalised P/E NTM. This is significantly below the market (~19X LTM ASX) and average of ~10-15X+ I have observed for IVF/Healthcare providers.
- Current valuation implies a normalised earnings yield of ~11-12%
- Strong dividend yield of ~4.2-7.6%, which is well above market averages - FY25 dividend of $10.1m and FY24 dividend of $18.3m
- My valuation highlights an intrinsic value of ~$1.0-1.7/share, with the current share price trading at a ~60-170% discount, highlighting a margin of safety. IMO there is limited downside risk at these prices. In the words of Mohnish Pabrai, "Heads I win, tails I don't lose much". This valuation is based on a Gordon Growth Model. Key assumptions include free cashflow of $19.7m average FY23-24, cost of equity of 10%, and long term growth ranging from 5-7%. I believe these assumptions are conservative with probability tilted to the upside - eg. MVF is currently growing NPAT at ~17%

In the words of Buffett, be greedy when others are fearful. The market is a voting machine in the short term and a weighing machine in the long term. IMO Mr Market has thrown the baby (& embryo) out with the bathwater here. Whilst management haven't handled the publicised errors perfectly, the business is ultimately robust and generating returns with several tailwinds (population growth, rising infertility etc). IMO the valuation is likely to revert toward intrinsic value in the next few years.

For those willing to stomach some short term volatility, IMO MVF represents a multi-bagger opportunity at these prices.

IMO DYOR!