Monash IVF (ASX:MVF) share price lower despite forecasting strong earnings growth

The Monash IVF Group Ltd (ASX: MVF) share price is trading lower following the release of a trading update and its guidance for FY 2021 at its annual general meeting.

In afternoon trade the fertility treatment company’s shares are down slightly to 78.2 cents.

Trading update.

According to the release, trading conditions have improved greatly over the last few months.

Management advised that following the COVID impact on its fourth quarter FY 2020 performance, increased demand for its services has led to stimulated cycles growing 23.1% between July and October compared to the prior corresponding period.

This improvement has also been experienced in its international business, with Kuala Lumpur stimulated cycles increasing 16.2% during the period.

One part of the company which wasn’t impacted during the pandemic was its Ultrasound businesses. They remained open throughout the pandemic and have continued to perform strongly. For the four months to the end of October, it reported a 10.7% increase in ultrasound scans compared to the prior comparative period.

And while management expects its overall growth to moderate, it remains confident that activity will continue to grow at above historical levels for the remainder of FY 2021. This is based on activity experienced in November and the current patient pipeline, which provides a good indication of activity in the short to medium term.

Though, this remains subject to any COVID-19 developments in the markets it operates in.

FY 2021 guidance.

In light of the above, management expects its first half reported net profit after tax to be approximately $14 million to $14.5 million. This will be up 75% to 81% on the $8.1 million it delivered in the prior comparative period.

Excluding non-regular items, first half net profit after tax is expected to grow 21% to 26% to between $11 million to $11.5 million. Monash IVF’s non-regular items include a $3.5 million impact from the Job Keeper Subsidy payments.

Looking to the second half, management expects its earnings growth to slow but still believes it can outperform the prior corresponding period.

It explained: “Earnings growth in 2H21 is expected to moderate as compared to 1H21 following recovery of pent up demand in Q1FY2021, however the Company expects that earnings growth can be achieved in 2H21 (as compared to 2H20) given growth in the current IVF patient pipeline and notwithstanding any further implications from COVID-19.”

Finally, this is likely to mean that its dividend payments will begin again.

“Given anticipated earnings growth during FY2021, cash flow and balance sheet positions, the Company is likely to recommence payment of dividends, but remains subject to business performance and any further adverse implications from COVID-19,” it added.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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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