Virtus expands in Tasmania

Virtus Health, Australia's largest network of IVF clinics, has acquired a 70% stake in Tasmanian-based provider TasIVF for $16m, funded by cash and $8m in bank debt.

TasIVF was founded in 1983 and has delivered more than 2,500 babies over the past 30 years. Its main laboratory and day hospital is in Hobart, with additional consulting clinics in Launceston and Devonport (the birthplace of our research director, who was reportedly conceived naturally).

TasIVF brings the total number of specialists under the Virtus banner to 91, following the company's purchase of IVF Sunshine Coast in Queensland and 70% of SIMS Clinic in Ireland earlier this year. A Virtus-branded fertility clinic in Singapore is also expected to open by the end of 2014.

The company has stated that 'for the year to 30 June 2014, TasIVF normalised earnings would have increased Virtus's basic earnings per share by approximately 1.24 cents', implying TasIVF earned around $1m for the year and an acquisition price of 16 times earnings. The price looks fair, especially when you consider there are likely to be administrative cost savings once the clinics are integrated into Virtus's network and that Virtus itself trades on a PER of 19.

The acquisition will increase Virtus's net debt from $118m to a still comfortable $134m, leaving the company with plenty of ammunition to make further acquisitions. Virtus also has the option to buy the remaining interest in TasIVF in 2017 and 2019.

The share prices of Virtus and competitor Monash IVF have been hit hard recently due to a surprise dip in the number of IVF cycles throughout the industry, though management still expect 'low to mid-teen per cent growth in earnings' for 2015. The stock is flat since Virtus Health and Monash still buys (Buy – $7.46) and we're sticking with BUY.