The flu vaccine is having a significant impact on the fortunes of a handful of ASX companies.
Australia's largest funerals group, InvoCare, became the latest to feel the pinch on Monday when it warned the number of funeral cases it handled in the nine months ended September was now 2000 lower than at the same time last year, because of a very mild winter and an effective flu vaccine campaign. This resulted in a $17 million hit to revenues so far this calendar year.
InvoCare shares slipped a further 3.6 per cent on Monday in early trading to $11.52. It is down 21 per cent since mid-August.
It comes as stockbroking house Credit Suisse said pathology companies Sonic Healthcare and Primary Health Care were facing headwinds from the benign flu season, with the number of confirmed positive influenza cases down by around 90 per cent compared with this time last year. The proportion of patients turning up to their local doctor with flu-like symptoms was down 100 basis points, impacting industry pathology volume growth. "The benign flu season is consistent throughout all of Australia," the broker concluded.
InvoCare is the biggest funerals company in Australia with a market share of about 33 per cent, and works on a rule of thumb where every 1 per cent decline in the number of deaths in Australia equates to around $3 million of funeral revenue on an annualised basis in its business.
InvoCare chief executive Martin Earp said on Monday the decline in death rates had deepened in the month of September, from the industry-wide drop reported by relevant state authorities for June through to August of 5.9 per cent.
The decline had been up to 8 per cent in some of InvoCare's major markets over the winter period.
"This variation is very unusual and despite improving market share, there will be an impact on our full year results," Mr Earp said. InvoCare operates 250 funeral homes and crematoriums, including brands such as White Lady Funerals, Simplicity Funerals and Tobin Brothers.
Credit Suisse said there had been an 86 per cent decrease in laboratory confirmed cases in 2018, while in NSW the number of flu cases had passed its peak and was already trending down in many areas. When a patient presents with flu-like symptoms, generally three pathology tests are performed including a flu swab, basic chemistry and haematology tests. It said the last time there was a "weak" flu season in Australia was 2013.
The broker has an "underperform" rating on both Primary Health Care and Sonic. It has a 12-month target price on Primary of $2.95, and Sonic of $23.50.
While InvoCare is battling against lower demand for funerals generally, it is also going through a major remodelling of many of its funeral home sites to make them more contemporary under a $200 million investment program it has called "Protect and Grow". Mr Earp said on Monday that by the end of 2018 the number of refurbished and revamped locations would reach 40 per cent of its total network. Baby Boomers are changing the funeral industry and want a more celebratory approach to the deceased person's life.
While lower volumes are hurting InvoCare in the short term, the company is expected to derive some long-term positive benefits from the serious criticisms by the Hayne royal commission of some funeral insurance providers. InvoCare has also been critical of funeral insurance, and only offers pre-paid contracts through its network.
- Philippa Coates
- Ute Junker