Assisted reproductive services (ARS) provider Monash IVF Group Ltd (ASX: MVF) released a cracking financial report earlier today. Here are some of the highlights:
- Revenue up 25.3% to $156.6 million (10.7% organic growth, 14.6% from acquisitions)
- Net profit after tax (NPAT) up 34.6% to $28.8 million
- Earnings-per-share (EPS) up 32.6% to 12.2 cents
- Total IVF treatments up 12.9% to 17.9 million
- Final fully franked dividend of 4.5 cents, 8.5 cents for the full year (3.6% yield) compared to 7 cents last year
It is always reassuring when a company delivers a clean set of statutory figures requiring no adjustments to understand underlying performance and that is what Monash provided today. The company's strong metrics extend beyond its profit and loss statement with return on equity (ROE) up 340 basis points to 19.3%, net debt down 10.6% to $86.5 million and cash flow from operations up 22.8% to $44.2 million.
Monash generates 96% of its revenue from Australia with the remainder sourced from Malaysia. Australian IVF treatments increased 12.4% outpacing the industry average of 8.2% in 2016. The industry growth rate was unusually high in 2016 and has averaged 4.1% historically so Monash cannot count on such favourable conditions every year.
The company has a 23.8% Australian market share with a particularly strong presence in Victoria and South Australia. The New South Wales region was boosted by a full year contribution from Sydney Ultrasound for Women, acquired in June 2015. This led to a 230.5% rise in the number of ultrasounds and 352.9% rise in the number of non-invasive prenatal tests performed by the group during the year. These services typically earn lower profit margins than the IVF business and Sydney Ultrasound for Women recorded earnings before interest, tax, depreciation and amortisation (EBITDA) margins of 22.8% compared to 31.7% for the group.
The Malaysian operation also experienced strong growth in terms of the number of treatments performed which rose 19.4% to 1,222. However, profit only grew by 4.3% to $2.4 million and was impacted by the introduction of GST in Malaysia and unfavourable currency moves.
Over the last five years Monash has increased revenue by 67.9%, but EBITDA has risen much faster at 132.7% illustrating the operating leverage at play in the business. This works both ways and I wonder whether ARS is the type of industry that will suffer during a recession as hard-up consumers put off expensive treatment until conditions improve. Still, based on its industry-leading success rates and large and growing market share I think that through the cycle Monash is likely to prosper.
It was interesting that despite a strong result today, Monash shares were down 3% in afternoon trading. The company is a leader in a growing niche market and looks reasonable value given it has a historical enterprise value-to-earnings ratio (EV/E) of 22x.
