IFM Investors small cap specialist Rikki Bannan addresses the Sohn Hearts & Minds Investment Leaders Conference at Sydney Opera House. Picture: Renee Nowytarger
Healthcare stocks – from sleep apnoea giant ResMed, to cancer diagnostic biotech Telix Pharmaceuticals – were recommended at the Sohn Hearts & Minds Investment Leaders Conference on Friday.
IFM Investors’ small cap specialist Rikki Bannan tipped the ASX-listed Telix, arguing that its potential in the growing area of cancer diagnostics made it an attractive buy.
She said the company, which is currently focused on the diagnostics around prostate cancer, is set to expand into diagnostics for new areas of cancer including renal cancer.
IFM Investors, an investment vehicle owned by 17 industry super funds with assets under management of some $215bn, has backed the company since its listing on the ASX in 2017.
Ms Bannan argued that the company’s shares were significantly undervalued, with the market giving no value to its range of future products.
She estimated its shares, which are currently trading around $9.40, had an underlying value of $16 — a recommendation which gave the company’s shares a boost in Friday’s trading.
Ms Bannan’s confidence in Telix’s future was based on its ability to sell its products into the growing US healthcare sector.
The company received US Food and Drug Administration (FDA) approval for its prostate cancer imaging product, Illuccix, in December 2021.
She argued that its next big area of focus was in diagnosing kidney cancer.
Meanwhile, Ellerston Capital director Chris Kourtis focused on the continued need for sleep apnoea products, particularly in the US.
He argued that the shares of ResMed have been seriously oversold as a result of concerns on the impact of weight loss drugs on the demand for its products.
Obesity is seen as a key factor in sleep apnoea.
Ellerston Capital director Chris Kourtis. Picture: Renee Nowytarger
ResMed shares have plunged this year, along with the shares of other medical stocks such as CSL, over concerns that the advent of weight loss drugs will reduce consumer need for their products.
“Its share price has been smashed in the last few months because of the talk about weight loss drugs,” he said.
“We hear about them everywhere,” he said.
But Mr Kourtis’ argument was that the impact of weight loss drugs on ResMed has been significantly over-estimated.
While there is growing interest in the development of weight loss drugs, he said they were very expensive — and many people who used them would go off them after a year, often regaining the weight they had lost.
Meanwhile, he said, the demand for sleep apnoea equipment would continue to be strong.
He said more than a billion people around the world suffered from sleep apnoea, most of whom were not treated for the condition.
“The market is incredibly underpenetrated and most people go undiagnosed,” he said.
Resmed currently has 80 per cent of the market in the US for sleep apnoea equipment as a result of the withdrawal of products in the market produced by Philips.
Mr Kourtis said ResMed had “an exceptional track record” and was undergeared, with a low level of net debt.
He said the $US13bn fall in the company’s market capitalisation this year had made it an attractive buy at the moment.
He said the company’s growth rate may be “pared back” a little from its past performance of 9-11 per cent, to closer to 7 per cent.
“Weight loss drugs are going to take off but ResMed’s runway, even given the take-up, is pretty long.
“Their revenue growth — which has been 9, 10, 11 per cent — may come down to 7 per cent, but it is still a great runway.”
He said the company’s share price, which had been trading on 35 times earnings in the past, was now down to only 20 times earnings, making it attractive given its potential compared to other companies which were similarly priced.
This article was originally posted by The Australian here.
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