Company Reports

We intend to cease coverage of Integral Diagnostics, Australian Clinical Labs, Healius and Nanosonics. We plan to cease coverage on or around June 30, 2026.

Australian Clinical Labs' strategy centers on capitalizing on the growing demand for diagnostic testing. Volume growth is underpinned by population growth, aging demographics, higher incidence of diseases, and wider adoption of preventative diagnostics to manage healthcare costs. These drivers are often greater in lower-density Australian states where ACL is largely based. In addition, the number of tests available is expanding. Increasing complexity of tests, such as veterinary and gene-based testing, is also resulting in average fee price increases. The majority of group revenue is earned from the public health Medicare system via bulk billing.

Australian Clinical Labs' strategy centers on capitalizing on the growing demand for diagnostic testing. Volume growth is underpinned by population growth, aging demographics, higher incidence of diseases, and wider adoption of preventative diagnostics to manage healthcare costs. These drivers are often greater in lower-density Australian states where ACL is largely based. In addition, the number of tests available is expanding. Increasing complexity of tests, such as veterinary and gene-based testing, is also resulting in average fee price increases. The majority of group revenue is earned from the public health Medicare system via bulk billing.

ACL's interim 2026 underlying EBIT grew 2%, with higher EBIT margins on network optimization more than offsetting 1% lower revenue. Full-year EBIT guidance was downgraded by 5% on weak general practitioner referrals in the first half. The CEO decided to depart in August. Shares fell 7%.

Medicare Australia statistics for benefits paid in core pathology for the four months to October 2025 increased by 2% on the prior corresponding period, a key revenue driver for Healius and Australian Clinical Labs, or ACL.

Australian Clinical Labs' strategy centers on capitalizing on the growing demand for diagnostic testing. Volume growth is underpinned by population growth, aging demographics, higher incidence of diseases, and wider adoption of preventative diagnostics to manage healthcare costs. These drivers are often greater in lower-density Australian states where ACL is largely based. In addition, the number of tests available is expanding. Increasing complexity of tests, such as veterinary and gene-based testing, is also resulting in average fee price increases. The majority of group revenue is earned from the public health Medicare system via bulk billing.

Australian Clinical Labs' strategy centers on capitalizing on the growing demand for diagnostic testing. Volume growth is underpinned by population growth, aging demographics, higher incidence of diseases, and wider adoption of preventative diagnostics to manage healthcare costs. These drivers are often greater in lower-density Australian states where ACL is largely based. In addition, the number of tests available is expanding. Increasing complexity of tests, such as veterinary and gene-based testing, is also resulting in average fee price increases. The majority of group revenue is earned from the public health Medicare system via bulk billing.

Australian Clinical Labs' fiscal 2025 underlying EBIT grew 9% to AUD 68 million on 6% revenue growth and margins recovering to 11% in the second half due to labor efficiency improvement. Management guidance was for fiscal 2026 EBIT of AUD 67 million to AUD 73 million. Shares rose 7% on the day.

Medicare Australia statistics for benefits paid in core pathology and diagnostic imaging for the five months to May 2025 increased by 5% and 7%, respectively, on the previous corresponding period, key revenue drivers for Sonic Healthcare, Integral Diagnostics, and Australian Clinical Labs.

Australian Clinical Labs' strategy centers on capitalizing on the growing demand for diagnostic testing. Volume growth is underpinned by population growth, aging demographics, higher incidence of diseases, and wider adoption of preventative diagnostics to manage healthcare costs. These drivers are often greater in lower-density Australian states where ACL is largely based. In addition, the number of tests available is expanding. Increasing complexity of tests, such as veterinary and gene-based testing, is also resulting in average fee price increases. The majority of group revenue is earned from the public health Medicare system via bulk billing.

No-moat Australian Clinical Labs' interim fiscal 2025 underlying EBIT grew 17% to AUD 27 million. The increase was driven by 9% revenue growth, slightly below market growth of 11%, and successful operational efficiency initiatives. Despite wage and rent inflation, underlying EBIT margin expanded 50 basis points to 7.4% due to 12% labor efficiency improvement, logistics and route optimization, and digitization of billing.

Australian Clinical Labs' strategy centers on capitalizing on the growing demand for diagnostic testing. Volume growth is underpinned by population growth, aging demographics, higher incidence of diseases, and wider adoption of preventative diagnostics to manage healthcare costs. These drivers are often greater in lower-density Australian states where ACL is largely based. In addition, the number of tests available is expanding. Increasing complexity of tests, such as veterinary and gene-based testing, is also resulting in average fee price increases. The majority of group revenue is earned from the public health Medicare system via bulk billing.

Australian pathology market growth, measured by Medicare benefits paid excluding coronavirus testing, was up a strong 11% in first-quarter fiscal 2025. Demand for pathology is defensive and underpinned by population growth, aging demographics, higher incidence of diseases, wider adoption, and a higher number of tests available. In the long term, we expect margin expansion on increased operating leverage from higher volumes and improved labor productivity as digitization and newer artificial intelligence tools expedite diagnoses. We also expect average fee increases through stronger pricing, additional government funding, and favorable mix benefits. Shares in narrow-moat Sonic Healthcare are undervalued versus our unchanged AUD 32 fair value estimate, as well as in no-moat Healius.

Australian Clinical Labs' strategy centres on capitalizing on the growing demand for diagnostic testing. Volume growth is underpinned by population growth, aging demographics, higher incidence of diseases and wider adoption of preventative diagnostics to manage healthcare costs. These drivers are often greater in lower-density Australian states in which ACL is largely based. In addition, the number of tests available is expanding. Increasing complexity of tests, such as veterinary and gene-based testing, is also resulting in average fee price increases. The majority of group revenue is earned from the public health Medicare system via bulk billing.

No-moat ACL’s fiscal 2024 group revenue of AUD 696 million was flat on last year while underlying EBIT fell 4% to AUD 63 million. Both were in line with our expectations and were largely due to higher-margin coronavirus testing revenue falling 59%. The second-half group underlying EBIT was up a strong 67% to AUD 39 million on the first half, with significant improvement in profitability as operational efficiency initiatives helped offset rent and wage inflation.

Top pathology providers remain significantly undervalued following the supportive pathology policy changes announced in the federal budget.

Top pathology providers are significantly undervalued. Shares in narrow-moat Sonic Healthcare, no-moat Healius, and no-moat Australian Clinical Labs have fallen by roughly 60% on average since the beginning of 2022 and now trade at an average 35% discount to our fair value estimates of AUD 32.00, AUD 3.00, and AUD 3.50, respectively. Within the healthcare sector, pathology stocks screen attractively. The subsector trades at an average price/fair value estimate of 0.65 versus the healthcare sector average of 1.11. Our special report, 'Pathology Providers Are Down but Not Out,' published on May 13, 2024, delves deep into the key drivers supporting our forecast margin recovery for the industry.

No-moat Australian Clinical Labs’, or ACL's, first-half fiscal 2024 group revenue and underlying EBIT fell 6% and 33% to AUD 337 million and AUD 23 million, respectively. This was largely due to higher-margin coronavirus revenue falling 76% but was broadly in line with our expectations. First-half group underlying EBIT excluding coronavirus testing was up a strong 16% as efficiency initiatives helped offset rent and wage inflation.

Australian Clinical Labs' strategy centres on capitalising on the growing demand for diagnostic testing. Volume growth is underpinned by population growth, aging demographics, higher incidence of diseases and wider adoption of preventative diagnostics to manage healthcare costs. These drivers are often greater in lower-density Australian states in which ACL is largely based. In addition, the number of tests available is expanding. Increasing complexity of tests, such as veterinary and gene-based testing, is also resulting in average fee price increases. The majority of group revenue is earned from the public health Medicare system via bulk billing.

Australian Clinical Labs intends to withdraw its takeover offer for Healius after opposition from the Australian Competition and Consumer Commission. The ACCC concluded the acquisition would likely substantially lessen competition in Australian pathology services markets. The ACCC considered current competitors, including narrow-moat Sonic Healthcare, and believes it is unlikely that a new or existing provider could enter or expand in a timely way and to a scale sufficient to address the potential loss of competition.