Blended Australian Equities Portfolio
Increasing Integral Diagnostics (IDX)
We added to the position in Integral Diagnostics in the Blended Portfolio. FY22 was the most challenging year for the industry, much of the 2.8% decline in industry revenue was driven by the decrease in GP and specialist in-clinic consultations due to impacts of COVID. IDX’s organic revenue growth of +3.7% in FY23 to date (Jul-Oct) compared favourably to the -0.5% Medicare Benefits paid for the States in which IDX operates, confirming a solid sequential improvement through Sep-Oct.
We do expect that pathology and diagnostic volumes should continue to improve as conditions normalize, supported by record levels of patients waiting for elective surgery and the medium to longer term pressures of the rise of chronic disease and ageing demographics.
Australian imaging market average growth rate has been 7% p.a. for the last 15 years. Taking 1% impact of GP shortage off the growth rate, we believe 5.5-6% is a realistic estimate for IDX’s organic growth rate in FY23/24.
Selling Waypoint REITs (WPR)
We have funded the addition to IDX by selling Waypoint REIT, a small holding in the Blended portfolio. WPR has outperformed the broader market over the past twelve months on a price and total return basis, with its return of 9.5% comparing to the market’s 1.6% over the same period. WPR’s portfolio optimisation strategy of selling non-core regional properties at a premium to book value to fund ongoing capital management initiatives has contributed to an 18.5% increase net asset value while income has increased 4.5%. Its dividend income and capital return focus has been positive in a period of high volatility yet ultimately flat market returns, however we see compelling value in IDX and greater total return prospects in the year ahead.
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