After posting stellar 2016FY results, Monash IVF Group Ltd (ASX:MVF) latest trading update may well be causing concerns for shareholders.
Source: Monash IVF 2016 results presentation
As we can see from the graph above, IVF treatments are somewhat cyclical in nature. After posting excellent growth last period we would again expect a pullback in Q1 2017.
Source: Trading update for Monash IVF 24/11/2016
As expected the pullback occurred, but rather than beating or at least matching the market, Monash IVF Ltd has suffered an even worse decline.
The more worrying information is that the decline got worse in part due to a new competitor entering into the Victorian market. (Note Victoria is one of Monash’s largest markets.)
This threat was confirmed by the another ASX listed IVF provider Virtus Health Ltd (ASX:VRT)
Source: Vitrus Health Company announcement 9/11/2016
Comments
With the average age of mothers in Australia 37 years and rising, perhaps only the aged care sector has a more robust demographic tailwinds than IVF providers.
While the tailwinds are a plus and unlikely to abate in the near future, they would also act as a strong incentive for new entrants. Unfortunately the barriers for new entrants are not particularly high and have come through already established hospital providers such a Primary Health Care Limited (ASX: PRY).
While new entrants are currently skewed towards providing a cheaper service I believe the biggest risk to current market operators is scientific advances which could reshape the industry overnight.
Tips for New Investors
Understanding a company’s economic moat (or lack of) is one of the most important lessons a new investor can master.
Warren Buffet coined the term economic moat and refers to a company’s competitive advantage over other market participants. This maybe a price advantage due to cheaper raw materials or a patented process allowing the company to produce at a significantly cheaper price than its competitors.
Disclosure:
Please Note: None of the above should be considered investment advice. These are my own opinions based on a number of years market experience. Please do your own research and consult a qualified financial advisor if you wish to invest.
