Monash IVF (ASX:MVF): Just when you thought a difficult 5 year span was over…

In the decade since fertility provider Monash IVF (ASX:MVF) listed, it was not an easy journey. Only a few months ago, we thought the business had turned a corner and many others did too. Then…trouble struck. Is this a buy the dip opportunity, or a risk of catching a falling knife?

 

Introduction to Monash IVF

Monash IVF was listed in May 2014 after being the fertility business of private equity group Ironbridge prior to that. It came less than 12 month after Quadrant’s infertility business Virtus Health listed and was one of the best listings of that year. Most private equity listings on the ASX tend to have short histories, are being flipped because private equity doesn’t think there’s more to come and know they can sell to retail shareholders who won’t question why they are selling.

This was not the case with Monash IVF. It was founded in 1971 and is the holder of several industry milestones including:

• The world’s first IVF pregnancy
• Australia’s first IVF birth (the third in the world at the time)
• The first frozen embryo birth
• The world’s first birth from donated eggs
• The first baby born from a vitrified egg
• Australia’s first pregnancy from ovarian tissue grafting

MVF is based in Victoria but has gradually expanded interstate over time, and it has a presence in Malaysia too.

 

A difficult few years

You would think the IVF industry is a good space to be in given the high margins and significant demand. The Royal Australian College of General Practitioners estimated in early 2023 that infertility generally impacted 180m globally and one in six couple experienced infertility. This is happening for several reasons including that couples are having children at later ages.

It would also help to have such a good reputation with all the above milestones as well as a high success rate. But between 2017 and 2022, it was not. You see, Monash IVF is heavily reliant on referrals from other specialists. And there was one specific doctor who saw high volumes – Dr Lynn Burmeister.

Dr Burmeister’s departure to go out on her own was a blow to the company because many were alluding patients to the company because of her. Another blow came at its FY19 results in August 2019 when five Victorian based fertility specialists would no longer be using its services – a $1.5-$2.5m estimated hit to its profit.

 

Impacted by the pandemic

When the pandemic struck, non-urgent elective surgeries were suspended and even though the suspension didn’t last long, patients took a while to come back and there is further lag when completing fertility treatment. Monash IVF had to raise $80m in capital during the pandemic and fully draw down on a $115m debt facility. It was a big raise with 153.8m shares issued (63.2% of existing shares at the time) and it was conducted at a steep 26.8% discount to its 71c share price on the company’s last trading day before the deal.

Even as fertility treatment levels returned to normal, things could have been better for Monash IVF. Its rival Virtus Health was acquired in 2022 and investors speculated that Monash IVF could be next.

Ultimately, it has not and this is unusual because as the second largest player in the market, it should have been first in line after Virtus. This is before you even considered its cheap multiples then and now. Instead, the third biggest company Genea was bought out and Monash IVF is now the only non-private equity owned operator of scale in its sector.

 

On the way back up, only to fall again…

Monash IVF stuck to its business and appeared to be onto something. FY23 was a great year. It delivered an 1% increase in revenues to $213.6m and a 15% jump in profit to $25.5m. This growth was delivered by a growth in market share and services as well as acquisitions and reopened fertility clinics (which were relocated post-pandemic). It closed the period with a 23.9% market share.

FY24 saw a net loss of $5.9m, but this was due to a $32.6m legal settlement. Its underlying profit was $29.9m, 17% ahead of FY23 and its revenue was nearly 20% higher at $255m. Numbers of patients and fertility specialists joining the group were higher too. And in 1H25, it grew revenues by 12% and its underlying profit by 6%. However, the ‘stuff’ hit the fan – if you know what we mean.

 

…Due to a tragic mistake

Reports broke out that an MVF client was accidentally impregnated with someone else’s embryo and that this error could have happened as early as 2 years ago. It only came to light when the birth parents asked to transfer their remaining embryos to another provider.

What is more is that the company withheld this from investors thinking this was not price sensitive. Turns out (when this became public) it was price sensitive. Think about it, if there’s a risk you could end up pregnant with someone else’s baby – why would you choose that provider?

An independent review was commissioned by the company, led by barrister Fiona McLeod. It remains to be seen if the birth parents will launch legal action. Speaking of what else we don’t know, we don’t know if that specific staff member still works with it or not and whether they only worked at that one clinic or at other sites across Queensland.

The company has claimed it has undertaken additional audits and was ‘confident that this was an isolated incident’. Indeed the incident is, for such an incident has never happened in Australia before. But who knows what the forthcoming review will find?

 

Valuation is quite compelling..for a reason of course

Monash IVF is trading at 9x P/E for the next 2 years and 6x EV/EBITDA. The flip side is that MVF is trading at a PEG of 1.2x, suggesting it is overvalued relative to its growth. Consensus estimates for FY25 suggest 12% revenue growth and 8% EBITDA growth, but a stagnant bottom line ($0.08 EPS). For FY26, 4% revenue growth, 7% EBITDA growth but a stagnant bottom line again.

The consensus price is $1.38 with the highest estimate being $1.69 and the lowest being $1.09. Even the ‘worst case’ is 54% higher than the 71c per share it is trading at now. Plus, there are positive industry fundamentals. IVF stimulated cycles are 21% above pre-COVID levels and 5-year CAGR growth to the end of 2024 was 4% – well above what it was pre-pandemic.

But, the company will need to recover its reputation. It can boast that MVF pregnancy rates have grown from 32.6% to 40.2% in 6 years, but are potential customers willing to trust that the company won’t make the same mistake again?

 

 

 

We wouldn’t be surprised to see the dreams of MVF being bought out become a reality down the track. We’ve seen with Silk Laser Clinics (ASX:SLA) and Healthia (ASX:HLA) that if the public markets refuse to re-rate a company, the private markets will.

The difference with those companies is they did not make such fatal errors and cop such bad reputational hits. Who would buy MVF right now?

There’s been precedent for companies impacted by ‘one-off’ events to be ‘buy the dip’ opportunities with Medibank (ASX:MPL) being one example. Obviously, whilst a far higher number of Medibank’s customers were impacted, it was hardly the case that no insurer had ever been impacted by a cyberattack before – its the world we live in. Whereas MVF has made a mistake no other company has made (at least not in Australia), one only uncovered 2 years after the fact and it could be just the tip of the iceberg.

 

So should I buy MVF shares?

Not until the results of the review have been released and the company’s response. It was such a bad mistake made, one that no company in Australian history had made and could cause permanent reputational harm. Things are more likely to get worse before they better.

 

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