Scott Power: Mach7 launches $5M buyback, reconfirms guidance

Morgans analyst Scott Power labels Mach7 his PowerPlay after it announced a $5 million on-market share buyback and reconfirmed FY25 guidance.

Mach7 was on a tear Friday after announcing a share buyback. Pic: Getty Images

• ASX health stocks up 3.3% over past week, while the broader market rises 1.9% 

• Microba reports a strong uplift in sales with cash receipts of $3.87m for Q2 FY25

• Mach7 initiates a $5 million on-market share buyback and reconfirms FY25 guidance 

Healthcare and life sciences expert Scott Power, who has been a senior analyst with Morgans Financial for 27 years, gives his take on the ASX healthcare sector for the week and his ‘Powerplay’ stock pick.

Morgans' Scott Power says it's been a big week for the ASX healthcare sector with "quarterly results coming thick and fast" and a few surprises.

At 3.30pm (AEDT) the S&P/ASX 200 Health Care index (ASX:XHJ) was up 3.3%, while the benchmark S&P/ASX 200 (ASX:XJO) rose 1.9% for the same period.

"Share prices have reacted with a couple unexpected and a little bit of profit taking coming in," Power said.

Strong quarter and traction for Microba

Microba, which has technology for measuring the gut microbiome and was Power’s top stock pick last week, has released its Q2 FY25 result.

The company reported strong uplift in sales with cash receipts of $3.87m for the quarter, up 109% on pcp. Q2 FY25 revenue was $4.43m, up 102% on pcp with H1 revenue of $8.08m, up 147% on pcp with gains in its MetaXplore and MetaPanel test sales.

Power said continued traction in the MetaXplore testing business with early contribution from MetaPanel (+28% growth QoQ) were the major driver of the result.

Microba's UK business Invivo held steady (flat on pcp) as the testing business shifted toward the introduction of MetaXplore tests with early access program showing strong early traction and now warrants an acceleration to full market access in 2H25.

Power said the key to the results for MetaXplore was the strong growth in new accounts (ordering clinicians), which increased 105% on pcp to 544, but also the number of tests sold (+195% vs pcp) showing higher order rates per clinician over the quarter.

"Both metrics continue to give us confidence in the forward opportunity here," he said.

"It was a positive quarter and the market should be very comfortable with the result."

Power attributes a fall in the Microba share price this week to profit taking after a recent rally.

Morgans has a speculative buy on Microba with a 12-month target price of 33 cents.

Power's Powerplay: Mach7 launches buyback with strong Q2 results

It was a big week for specialist in medical imaging software solutions Mach7 Technologies (ASX:M7T), announcing a $5 million on-market share buyback on Thursday and releasing its Q2 FY25 results on Friday.

Mach 7 said it was on track to meet FY25 guidance with contracted annual recurring revenue (CARR) of $31.8m in Q2 FY24, up  15.6% on Q1 FY24.

The company reaffirmed FY25 guidance for 15-25% growth in CARR and revenue on pcp and for opex growth to be less than revenue growth and closed the quarter with cash of $23.6m, up 4% on pcp.

The buyback conditions over the 12 month period allow M7T to re-purchase shares at a premium of 5% or less than the 5-day volume weighted average price (VWAP).

Power said Morgans, which will be managing the buyback, views it as a positive development given the share price is sitting at five-year lows with a a sign of confidence from the company in the pipeline ahead.

"M7T has underperformed the market over the last few years as a result of taking longer to reach profitability and shift into a smoother positive operating cashflow stance (has historically been lumpy QoQ given capital/recurring mix) than originally anticipated," he said.

"It shows the company thinks their share price is significantly undervalued."

M7T was up close to 11% on Friday.

Aroa falls on narrowing full year revenue guidance

New Zealand-based soft-tissue regeneration company Aroa Biosurgery (ASX:ARX) is down more than 20%, despite recording its first quarter of positive cash flow with a NZ$1.2m surplus.

US-focused Aroa reported December quarter cash receipts of NZ$19.5m, in line with expectations.

Power said what seemed to not sit well with investors was Aroa narrowing revenue guidance from NZ$80-87m to NZ$81-84m for the full year to March 2025 and normalised EBITDA from NZ$2-6m to NZ$2-4m.

Management has called out some of the reasons for the lower guidance being softer revenue from its US distribution partner TelaBio in the December quarter and IV shortages.

But Power expects to see the company deliver strong performance in the fourth quarter.

"The market was expecting that full year guidance to be reconfirmed particularly given it had a good currency tailwind," Power said.

"The final quarter there will be some catch up and they should deliver another operating cashflow positive fourth quarter as it's one of their stronger quarters."

Morgans maintains an add rating on Aroa but has reduced its 12-month target price from $1.05 to 93 cents. That remains around 60% upside on its current trading price.

ResMed revenue up 10% in strong Q2 result

Power said leader in obstructive sleep apnoea and other sleep-related respiratory disorders ResMed (ASX:RMD) has reported a stronger than expected Q2 FY25 result.

Revenue was up by 10% to ~$1.3 billion with top-line growth, margin expansion, and double-digit EPS growth which management attributed to increased demand for its sleep and breathing health products and digital health solutions plus “laser-focus on operational excellence”.

"RMD is one of Morgan’s key portfolio picks (and has been for a number of years) and is poised to continue to deliver solid earnings growth for the foreseeable future.”

Morgans has an add rating on RMD with a current 12-month target price of $41.33.

Research Corner: Grief knows no boundaries

A study led by Monash University has found that when a person's spouse dies, their loneliness and grief persist regardless of whether they are isolated or supported socially, are self-reliant or healthy.

The study, published in the journal Archives of Gerontology and Geriatrics, and led by world-leading loneliness expert Dr Rosanne Freak-Poli from Monash University, identified almost 750 women and men who had lost a spouse from a large longitudinal dataset and assessed their loneliness from three years before to three years after spousal loss.

This study revealed that little can protect a person against the grief of the death of a spouse.

"We found that loneliness related to spousal bereavement occurred regardless of low social isolation or high social support," Dr Freak-Poli said.

"Additionally, the impact of spousal loss on increasing loneliness is felt uniformly, regardless of gender, wealth, health."

According to Dr Freak-Poli, interventions to increase social interaction and support are unlikely to benefit people experiencing spousal bereavement-related loneliness.

“What is needed is personalised help with a focus on creating new social connections and routines to form a sense of identity as an individual rather than as a couple,” she said.

Co-researcher, Dr Htet Lin Htun, said that many countries were now turning to social prescribing, where healthcare providers recommend activities like cooking classes or walking groups instead of just relying on medication.

“It’s all about a patient-centred approach, where individuals help design their own plans. For people dealing with the long-term effects of bereavement, this could be a game-changer—helping them rebuild routines and find connection through activities tailored to their needs."

The views, information, or opinions expressed in the interview in this article are solely those of the interviewee and do not represent the views of Stockhead.

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At Stockhead, we tell it like it is. While Aroa Biosurgery is a Stockhead advertiser, it did not sponsor this article.

Disclosure: The author held shares in Mach 7 at the time of writing this article.