Hi Jack,
Thanks for the feedback and comments.
We discussed the healthcare sector on Thursday and, if pushed, we would currently favour ResMed (RMD) over CSL. ResMed’s fundamentals are clearly stronger, with better returns, margins and earnings momentum, while its valuation has compressed to a far more attractive level. On that basis, your comparison is fair.
That said, we would still like to see sentiment improve towards ResMed’s digital health/software business before considering re-entering. While the core sleep-apnoea franchise remains high quality, the market has been reluctant to give full value to the broader business mix, and that has weighed on the share price.
CSL is a different situation. The deterioration in its fundamentals has been significant, and a large part of that can be traced back to the Vifor Pharma acquisition in 2022, where CSL paid a very full price. The deal added debt, complexity and earnings disappointment, and it has clearly hurt returns and investor confidence. That said, the stock has now de-rated heavily, with the market effectively pricing CSL as a much lower-quality business than it has historically been.
Our view is that there is scope for both stocks to recover, but the path is different. For ResMed, the opportunity is more about the market recognising the quality and value already on offer. For CSL, the recovery is more dependent on management restoring confidence, improving returns and proving that the Vifor acquisition can be properly integrated and stabilised.
More broadly, healthcare as a sector has been re-rated lower, partly because CSL has been such a major drag. That has reduced the sector’s index weighting and, in turn, the flow of passive money into the space. If sentiment towards healthcare improves, ResMed should benefit, but CSL likely needs to get its own house in order for the sector to enjoy a more meaningful re-rating.
So, in short, we agree that ResMed looks the higher-quality and better-value business today, while CSL is more of a turnaround/recovery proposition. If forced to choose, we would favour ResMed, but we would still like to see a clearer improvement in sentiment before moving back in.
Tasmea Ltd (TEA) is a specialist industrial services contractor providing maintenance, shutdown, engineering and capital upgrade services to the mining, energy, infrastructure and water sectors. Think of it as a more mining-focused, WA-centric version of Service Stream that we touched on in another question today.
The company has been one of the ASX’s standout performers over the past year, with the share price rising around +155%, helped by strong organic growth and a successful acquisition strategy. Revenue has grown from $320mn in FY23 to an estimated $2.3bn in FY27 as the business executes impressively.
- Also, EPS is forecast to increase from 9.4c to 43.4c over the same timeframe illustrating the underlying quality of the business i.e. translating top line growth into earnings.
However, the stocks not cheap, as would be expected for a company growing so fast trading on ~34x.
The next leg of growth is centred on acquisitions, with deals such as Maxim expanding Tasmea into data centres, battery storage and electrification, broadening the business beyond its traditional mining exposure. We like the long-term thematic tailwinds but feel much of that optimism is already reflected in the share price with expectations very high, leaving little room for disappointment.
- We like TEA around $9.50 but would prefer the risk/reward close to $8.50.
