Fertility Demand Headwinds And Rising Compliance Costs Will Pressure Earnings Outlook

Catalysts

About Monash IVF Group

Monash IVF Group provides fertility, ultrasound, genetics and day surgery services to patients in Australia and selected Asian markets.

What are the underlying business or industry changes driving this perspective?

• Persistent softness in stimulated cycle volumes, especially in key states such as Victoria and Queensland where market share has already fallen, risks limiting top line growth even if broader consumer sentiment stabilises. This could cap revenue and EBITDA expansion.
• Demographic and demand trends that normally support IVF volumes are currently offset by cost of living pressures and delayed family formation. This may prolong the current period of industry volatility and constrain Monash IVF's ability to lift revenue and earnings from the FY26 base.
• Ongoing investment in new clinics, day hospitals and digital systems, while strategically important, is occurring against a backdrop of flat or declining activity. This raises the risk that higher depreciation and operating costs outpace utilisation gains and compress net margins.
• Heightened regulatory and governance scrutiny following clinical incidents, alongside additional safety protocols and electronic witnessing requirements, may structurally increase compliance and staffing costs faster than pricing can be raised. This could put pressure on operating margins and net profit.
• Slower than expected conversion of strong reproductive genetic testing volumes into higher value IVF and PGT-M cycles, particularly among younger patients who may delay treatment, could defer the earnings benefit from genetics and limit revenue growth relative to current expectations.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Monash IVF Group's revenue will grow by 1.1% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 9.2% today to 8.3% in 3 years time.
• Analysts expect earnings to reach A$23.5 million (and earnings per share of A$0.06) by about December 2028, down from A$25.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting A$26.6 million in earnings, and the most bearish expecting A$20.0 million.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 16.2x on those 2028 earnings, up from 12.7x today. This future PE is lower than the current PE for the AU Healthcare industry at 46.0x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.67%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• A recovery in consumer sentiment, supported by falling interest rates and easing cost of living pressures, could restore IVF demand to its long-term growth trajectory and drive a return to mid to high single digit industry growth. This could lift Monash IVF Group's revenue and earnings above current expectations and potentially re-rate the share price.
• Structural tailwinds from reproductive genetic screening and PGT-M, underpinned by Medicare-funded testing and rising volumes among younger age cohorts, may convert into higher value IVF cycles over time. This may support sustained procedure growth, mix improvements and higher net margins and earnings.
• Execution of efficiency programs and digital transformation, including the new IVF patient management system and procurement savings, together with improved utilisation of new clinics and day hospitals, could expand EBITDA margins and operating leverage. This may drive stronger earnings growth than implied by a flat share price view.
• Successful clinician retention and continued attraction of new fertility specialists, together with new capacity in Brisbane, Singapore and other key markets, may allow Monash IVF Group to regain or grow market share as industry volumes normalise. This could support faster revenue growth and higher earnings over the medium term.
• Resolution of class action impacts, stabilisation of governance and risk controls, and the absence of further major incidents could rebuild patient and regulator confidence. This may enable a return to dividends and a higher valuation multiple, which would support share price appreciation through improved free cash flow and net profit stability.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of A$0.8 for Monash IVF Group based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of A$0.95, and the most bearish reporting a price target of just A$0.65.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be A$280.9 million, earnings will come to A$23.5 million, and it would be trading on a PE ratio of 16.2x, assuming you use a discount rate of 6.7%.
  
• Given the current share price of A$0.81, the analyst price target of A$0.8 is 1.4% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.