Doubling down on Virtus and Monash IVF
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Monash IVF and Virtus Health's share prices have fallen 26% and 8% respectively since yesterday's announcement by Virtus that the IVF provider is losing market share to bulk-billing upstart Primary Health Care (see Virtus warns on growth from 2 Jun 15 (Buy – $6.11)).
Primary's bulk-billing model didn't cause an extinction of full-price GPs, and we don't expect a mass abandonment of Virtus and Monash's full-service offerings either. Virtus and Monash face pricing pressure, margin declines and a loss of market share, but they also have high returns on capital, economies of scale, solid brands and plenty of free cash flow. Best of all, with free cash flow yields above 6.5%, you're being well compensated for those risks. BUY
Note: Our model Growth Portfolio is buying 1,500 shares of Virtus at $5.69 for a total cost of $8,535, and 4,500 shares of Monash IVF at $1.46 for a total cost of $6,570. Our model Income Portfolio is buying 1,000 shares of Virtus at $5.69 for a total cost of $5,690, and 3,000 shares of Monash IVF at $1.46 for a total cost of $4,380. This raises their combined portfolio weighting to 7% for the Growth Portfolio and 6% for the Income Portfolio. The Premium Portfolio also owns shares in Virtus and Monash IVF.
Disclosure: Staff members own shares in Virtus Health, but they don't include the author.
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