Virtus Health is a fertile offering: RBS Morgans

The world's only pure ARS-listed company is well placed to grow in the near term, according to RBS Morgans.

RBS Morgans initiated coverage on Virtus Health (VRT) with an "outperform" rating as it believes that the fertility services company could run up another 20% over the next 12 months.

The broker set a one-year forward price target of $8.64 for the stock, which is trading at $7.19 at 1235 AEST, and is forecasting a dividend yield 3.3%.

The rationale for the recommendation includes VRT's experienced management, a burgeoning and attractive assisted reproductive services (ARS) market – which Virtus leads with a 35% market share – and the number of strong growth initiatives that the company is positioning itself in.

"VRT is well positioned to continue its earnings growth by increasing its market share through recruitment of more fertility specialists, expanding the low-cost IVF [in vitro fertilisation] model... and pursuing potential acquisitions... including possible overseas opportunities," the broker said.

Virtus commenced trading on the Australian Securities Exchange early last month, becoming the first purely listed ARS company in the world. Since then the stock has surged 16% compared to the All Ordinaries' 4.9% rise.

Data compiled by Eureka Report shows that on average, new stocks lag the broader market by 0.1% after the first week and are behind by 2.6% after six months (see Brendon Lau's Making money from small cap IPOs).

"Although the share price has rallied strongly we believe there is further upside for investors based on our valuation metrics and positive long term demographic trend for ARS services," RBS Morgans said.