F&P price expands after slimming over fears of weight-loss drug’s impact
Tech sector merger surge driven by overseas bidders, lower Kiwi dollar
Fisher and Paykel Healthcare’s share price looks to have recovered from last year’s slump, when investors fretted over the impact that new weight-loss medications would have on the company.
Shares in the respiratory products-maker sank to a low of $20.45 last October in reaction to the phenomenon of GLP-1, a pharmaceutical product that causes weight loss.
A big part (30 per cent) of F&P Healthcare’s business is in treating obstructive sleep apnea (OSA) — which is associated with obesity.
With the advent of new weight-loss drugs, there was a question about whether people would need to keep using OSA devices, and the market became wary about slowing sales.
Now, the weight-loss panic seems to have subsided, and F&P Healthcare’s (FPH) share price looks to have rebounded accordingly.
Forsyth Barr senior analyst Matt Montgomerie says that while concern about weight-loss medication has not gone away, it is “significantly lower”.
“I believe this reflects two factors: FPH and ResMed’s [the largest sleep apnea care provider globally] recent results have highlighted that there has been next to no revenue impacts from GLP-1s seen thus far despite the strong GLP-1 uptake; and expert calls that have been hosted across the investment community with sleep physicians have affirmed the ability for the therapies to co-exist,” he says.
“GLP-1s have the ability to impact OSA severity, but the majority of patients continue to receive CPAP [continuous positive airway pressure] therapy even when using GLP-1s, and in some instances GLP-1s have increased the awareness of CPAP therapy.”
This week, F&P Healthcare — the market’s biggest stock by market cap — announced the launch of the F&P “Nova Micro” nasal pillows mask in New Zealand for the treatment of OSA.
Last month, the company upgraded its earnings guidance for the March 31 year. It now expects fullyear operating revenue to be about $1.73 billion and underlying profit after tax to be in the range of about $260 million to $265m.
That’s a mild upgrade on the previous guidance, issued in November, of $1.7b and a net profit range of $250m to $260m.
The latest guidance warned that the higher interest rate environment and current zoning status of F&P Healthcare’s land in Karaka, where it plans to build extensive new facilities, will likely have an adverse impact on the property’s valuation.
The consensus of market forecasts for revenue in 2025 is about $1.92b, with a net profit of $328m.
“Given the more sustainable drivers of the upgrade being higher homecare revenue and supportive commentary for hospital consumables demand, we walk away with increased comfort on the medium-term earnings outlook,” Montgomerie said in a note. F&P Healthcare’s annual result is expected in May.
Shrinking market
New Zealand’s sharemarket is shrinking, but it’s not the only one. Latest data from the NZX showed the number of equity issues totalled 126 in March, down 4.5 per cent on a year earlier.
Jamie Dimon, chairman and chief executive of JPMorgan Chase, has long bemoaned the diminishing role of public companies in the American financial system. “From their peak in 1996 at 7300, United States public companies now total 4300 — the total should have grown dramatically, not shrunk,” Dimon said in a letter to shareholders.
“Meanwhile, the number of private US companies backed by private equity firms — which does not include the rising number of companies owned by sovereign wealth funds and family offices — has grown from 1900 to 11,200 over the last two decades.
“This trend is serious and may very well increase with more regulation and litigation coming. Along with a frank assessment of the regulation landscape, we really need to consider: is this the outcome we want? There are good reasons for private markets, and some good outcomes result from them.”
For example, companies can stay private longer if they wish and raise more and different types of capital without going to the public markets. “However, taking a wider view, I fear we may be driving companies from the public markets.”
Low Kiwi driving M&A
The recent surge in merger and acquisition activity within the New Zealand tech sector has been notable for the significant takeover premiums on offer, driven by opportunistic overseas bidders taking advantage of lower sector valuations and a weaker Kiwi dollar, Forsyth Barr said in a research note.
Significant offer premiums for companies like Rakon (174 per cent), Task — formerly Plexure — (103 per cent) and Eroad (69 per cent), underline the perceived undervaluation of these firms by foreign investors, the broker said.
The average premium of 76 per cent in bids made for New Zealand tech companies in the past 18 months hints at the divergence between international and domestic views of the sector. “There is cautious global optimism, with offshore acquirers betting on the long-term value while local investors remain more conservative about the near-term outlook.”