In a little under 12 months of trading, In-Vitro Fertilisation (IVF) group Virtus Health Ltd (ASX: VRT) has returned nearly 41% for investors. After listing in mid-June 2013 at $5.68, the company's shares closed at $6.21 after the first day and have managed to hold onto the majority of gains to trade at around $8 currently.
The fairly spectacular rise has led to the company having a market capitalisation of around $650 million, but a new competitor has recently listed on the ASX and could be a great company to own for patient investors.
But First, Some Background
IVF is the most common process undertaken by couples that are struggling to have babies naturally. The industry in Australia is controlled by a few big names and costs an arm and a leg for patients. Around two-thirds of the $10,000 bill is paid by the healthcare system, however patients must fork out the rest, regardless of the success of the process.
Importantly for IVF companies, there is an ongoing shift towards older age pregnancies for Australians. More and more couples are leaving it until later to start a family, meaning more are struggling to naturally conceive due to age. This works in the favour of IVF companies and has resulted in the number of treatments per year tripling over the last 14 years. Experts estimate the industry is growing at 5% annually and the best companies are finding more and more ways to incorporate recurring revenue streams into the business.
An Alternative
Monash IVF Group Ltd (ASX: MVF) listed on June 26 at $1.85 and while it rose quickly above its issue price, it has since slid back to $1.81. Analysts have been somewhat divided about the float pricing; some have suggested that Monash was priced aggressively to leverage off the success of Virtus' successful first year, while others believe both have significant room to grow.
Either way, investors should take note of these companies. Gross margins are in the order of 30%, return on assets and equity are huge, the industry is growing and demographic trends will continue to favour assisted reproduction in the future. Indeed, as the successes of these treatments become more widely understood, it may further increase the market by providing an easy fallback for career-focussed couples.
Both companies are priced on a forward price to earnings of around 20 and appear to have manageable debt levels. The key risks include a cut in government subsidies or a significant international competitor entering the local market.
These companies could be huge in 5 to 10 years time, don't miss out!
