virtus foray into ireland gets the tick

Analysts have approved Virtus Health’s first international foray, after the fertility company bought a 70 per cent stake in Irish fertility medicine clinic SIMS IVF for €15.49 million ($22.8 million).

In its presentation to the market, management highlighted the low levels of IVF use in Ireland compared with Australia. The number of IVF cycles performed, per 1 million of population, is 750 in Ireland, compared with 1,642 in Australia.

UBS analyst Andrew Goodsall said the rate in Ireland was consistent with other European countries, essentially ruling out a rapid rise to Australian levels.

“Prices are high and affordability low (relative to Australia) given limited government assistance,” he said of the European Union. “We expect growth in the Irish market to continue at its recent run-rate of about 4 per cent per annum.”

CLSA analyst Dave Stanton noted out-of-pocket costs for patients in Ireland, where there is no government funding for IVF, were 220 per cent higher than in Australia.

“Virtus will look to grow specialised diagnostic services, increase day hospital revenue/earnings, and continue to increase the pricing of ARS [assisted reproductive services] with SIMS,” Mr Stanton said in a note.
Potential for higher growth

UBS’s Mr Goodsall upgraded his target price to $9.15, from $8.65. “In time, we would expect the relative unconsolidated EU market to present further accretive acquisition opportunities,” he told clients.

“Equally, we would expect VRT to leverage its corporate advantage beyond capital alone; such as integrating some of its marketing skills which have the potential to drive higher-growth than our initial estimates.”

Stanton prefers Virtus to the soon-to-be listed Monash IVF, which is rattling the tin among institutions on Tuesday and Wednesday to raise almost $300 million.

Virtus trades on a 17.3-times price to earnings multiple, while Monash will look to raise in the range of 15.1 to 17.0-times. “We don’t expect another VRT-like boost to performance,” he said of the proposed Monash float.

Morgan Stanley analyst Sean Laaman said the SIMS acquisition increased Virtus’ net debt to $155 million. He said the company’s “highly cash generative nature” would see net debt reduce to $129 million by the end of financial 2015.