Why has F&P Healthcare's share price fallen from grace?

Since June 30, Fisher & Paykel Healthcare's stock has fallen by 14 per cent. Shares in Fisher and Paykel Healthcare, one of New Zealand’s largest listed companies, have fallen by 14% to around $21.10 since June 30 due to developments in weight loss drugs. The company's share price has also dropped by 6.2% over the same period, a far cry from the record high of $37.68 set in October 2020. Salt Funds managing director Matt Goodson attributed the fall to the advent of new weight-loss drugs known as GLP-1s; and sharply higher bond yields. The impact of these new drugs on the share prices of healthcare companies may be seen in the future. The number of patients taking the drugs is expected to grow almost fivefold to 24 million people, or 7 per cent of the US population, by 2035.

Veröffentlicht : vor 2 Jahren durch Jamie Gray in Business Health

Shares in Fisher and Paykel Healthcare have come under pressure from developments in weight loss drugs. Photo / File

Why has Fisher & Paykel Healthcare, one of New Zealand’s biggest listed companies and perhaps its most successful, fallen from grace?

Since June 30, the stock has fallen by 14 per cent to around $21.10, while the S&P/NZX50 index has dropped by just 6.2 per cent over the same period.

That’s a far cry from the stock’s record high of $37.68, set in October 2020 - the middle of the Covid-19 pandemic, when demand for its respiratory products was intense.

Salt Funds managing director Matt Goodson said F&P Healhcare’s share price was suffering on two fronts: the advent of new weight-loss drugs known as GLP-1s; and sharply higher bond yields.

United States news wire Dow Jones reported that the September quarter saw the biggest plunge in US medical-device stocks since the 2020 lockdowns, on fears that the new class of drugs, whose names include Ozempic and Wegovy, may affect demand.

Morgan Stanley, in an analysis, said the number of patients taking the drugs is forecast to grow almost fivefold to 24 million people, or 7 per cent of the US population, by 2035.

About 42 per cent of the adult population in the US is obese, according to Centres for Disease Control and Prevention data.

Sleep apnea has been closely linked to obesity.

Goodson said the impact of GLP-1 drugs had a major impact on the share prices of healthcare companies who are exposed, or who may potentially be, in the future.

“The GLP-1 exposure has been a biggie, but high bond yields have certainly not helped,” Goodson said.

“F&P Healthcare derives approximately 30 per cent of its revenue from the sleep apnea business and it accounts for about 20 per cent of our valuation,” Goodson said.

“The rest of F&P Healthcare has no obvious exposure to the weight-loss drugs,” he said.

Bond yields have risen sharply in New Zealand and globally in recent weeks, which tends to have an impact on the value of high-growth stocks.

“There has been a disproportionate impact on the valuation of future earnings from companies with long-dated growth such as F&P Healthcare,” Goodson said.

“The healthcare stocks, not all of them, have underperformed globally.”

Goodson said it was still early days as to what the impact of new GLP-1 drugs would be.

“There has certainly been a willingness to shoot the potential exposures first and ask questions later,” he said.

US and Australia-listed ResMed, which is deeply involved in sleep apnea products and which is sometimes lumped in with F&P Healthcare, has been hit hard.

The stock dropped 24 per cent in August, 7.5 per cent in September and 5 per cent in October. Since July, ResMed’s share price has dropped by about a third.

In the meantime, it’s still not clear as to what long-term benefit F&P Healthcare will get from the Covid-19 pandemic.

Mohandeep Singh, senior research analyst at Craigs Investment Partners, said F&P Healthcare’s decline was a curious one.

The company’s investor day in mid-September was “solid”, and the company is due to report its half-year results next month.

Singh said the weaker New Zealand dollar should help reported earnings.

In August, F&P Healthcare said it expects its first-half operating revenue to be about $790 million, and its net profit to be within a range of $95m to $105m.

That would represent about 14 per cent growth in revenue on the first half of the previous financial year.

For the full year, the company’s guidance is for revenue of about $1.70 billion.

“It’s worth noting that a couple of substantial F&P Healthcare holders have been increasing their holdings over the last week or two,” Singh said.

In separate notices to the NZX, Hyperion Asset Management said it had raised its stake in the company to 6.09 per cent, from 5.07 per cent.

Pinnacle Investment Management has increased its stake in the company to 6.19 per cent, from 5.08 per cent.

F&P Healthcare, and the broader market, has had to contend with the steep rise in bond yields.

In New Zealand, Government 10-year bond yields have gone from 4.6 per cent in July to 5.5 per cent today.

In the US, short-term Treasury yields jumped to their highest level in 17 years this week after stronger-than-expected US retail sales data.

The US two-year bond last traded at 5.2 per cent, its highest level since 2006, after the retail report raised investors’ fears that the Federal Reserve could lift borrowing costs further in its fight against inflation.

Futures market pricing suggests now pricing a roughly 47 per cent chance of a further Fed rate rise by the year’s end.

Automation and robotics solutions provider, Scott Technology, whose majority owner, Brazil’s JBS, has its stake up for review - has reported a record profit.

Scott said its revenue was up 21 per cent at $268m.

Operating Ebitda increased 27 per cent to $30.4m while net profit after tax was up 21 per cent to $15.4m

Scott’s chief executive John Kippenberger said there was strong revenue growth in Europe and in North America.

Kippenberger told Stock Takes the strategic review could take several months.

“All we can say is that we will update shareholders when the strategic review is completed.”

Meanwhile, a coalition of environmental groups is pushing US securities regulators to thwart JBS’ New York share listing over concerns about the meatpacker’s impact on deforestation and climate change.

JBS - the world’s biggest meat processor - is seeking a listing to attract a broader investor base to give it more access to cheaper capital.

Brokers Forsyth Barr produced an impressive glossy magazine to go with the Rugby World Cup being held in France.

The broker, which has naming rights for Dunedin’s covered stadium, predicted that France would win the tournament, with New Zealand coming second.

That’s all come unstuck now with Les Bleus losing to South Africa in the quarter-finals.

France have been at every World Cup since its inception in 1987.

They have finished as runners-up in three tournaments, losing to New Zealand by one point in 2011.

As it stands, the odds favour New Zealand in tomorrow’s match against Argentina.

The TAB is paying $7.00 for a Los Pumas win and $1.08 for the All Blacks.

Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.

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