Compumedics Limited

Company Overview: Compumedics Limited (ASX: CMP) is involved in the development, production, manufacturing, and marketing of medical devices used for the analysis of brain and sleep disorders, and to investigate ultrasonic blood-flow applications. The company has its business operations in the Asia Pacific, the USA, Australia, and Europe. CMP is also involved in assessing neurological syndromes, including long-term epilepsy monitoring (LTEM).

CMP Details

CMP Rides on Decent Operational and Financial Fundamentals: The company delivered a decent financial performance in FY21, with an enhanced focus on generating profits from its core business, along with maintaining strong investment strategies in research and development. The ongoing investment in the core business, along with pursuing commercial opportunities for both the MEG and Somfit technology platforms, resulted in sound profitability across its business.

Key Findings from FY21 Results:

• Rise in Revenues: In FY21, the company’s revenue went up by 2% on pcp and came in at $35.7 million. On a constant currency basis, the top-line went up 9% year over year. The rise was driven by growth across European businesses.
• Growth in EBITDA & NPAT: EBITDA stood at $2.6 million in FY21, compared to a loss of $5.4 million reported in FY20. NPAT improved to ~$1 million, compared to a loss of $5.8 million in FY20. The reported EBITDA and net loss in FY20 were after a non-cash adjustment in the value of the intangible asset by $7.7 million.
• Rise in Earnings Per Share: The company reported EPS of 0.6 cents as compared to a loss of 3.3 cents reported in FY20.
• Rise in Core Business Sales Order: In FY21, core business sales orders stood at $35.3 million, flat on a year over year basis. Nevertheless, on a constant currency basis, it went up by 8% on pcp. The company benefited from its diversified revenue streams and growth across France, Germany, and other parts of Europe, which was partially offset by declines in the Asian region.
• Results for the Core Diagnostic Medical Devices: The business includes the technology and products sold worldwide for the diagnosis and monitoring of sleep disorders and neurological illnesses. During FY21, Revenue from Medical Diagnostic Devices stood at $35.7 million, up from $34.1 million in FY20.
• Key Growth Initiatives: The company has come up with growth initiatives in eHealth and has expanded the NeXus 360 platform in Australia and the USA. The Nexus 360 platform generated A$1.1 million in revenue in FY21.

Revenues and NPAT Highlights; Analysis by Kalkine Group

Balance Sheet, Liquidity Position & Key Metrics: The company exited FY21 with a cash balance of $6.77 million, up from $6.41 million at the end of 30 June 2020. Total debt amounted to ~$5.82 million at the end of the period. During FY21, the company generated an operating cash inflow amounting to $1.61 million. For FY21, the company reported an EBITDA margin of 9.4%, higher than the 3.8% reported in FY20. In FY21, the company recorded gross margins of 53.6% compared to 51.4% reported in FY20.

Profitability Profile; Analysis by Kalkine Group  

Top 10 Shareholders: The top 10 shareholders together form around 68.22% of the total shareholdings, while the top 4 constitute the maximum holding. Burton (David) and Beijing Bestmed Tech. Ltd. held the maximum number of shares with a percentage holding of 55.34%, and 2.77%, respectively, as also highlighted in the chart below: 

Top 10 Shareholders; Analysis by Kalkine Group 

Risk Analysis:

• The company is exposed to a complex regulatory landscape along with prevailing global uncertainties related to COVID-19 and other geopolitical tensions.
• The company is exposed to forex headwinds and stiff rivalry from competitors developing similar product lines and services.
• The company has declared or distributed no dividends to its members, which might hurt the sentiments of the shareholders.

Outlook: The company reported continuous success across the core businesses, which positions the company to garner additional revenue, going forward. The company is taking initiatives to roll out a new range of ambulatory products to significantly expand its addressable market. It remains on track to develop its neuro-diagnostic business in the US and China, as well as other key markets across the globe.

In addition, the company has undertaken phase 1 of the installation of its first MEG sale at Barrow Neurological Institute in the US and aims to carry out further prospects in this field during FY22. CMP is continuing to commercialise its cloud-based sleep diagnostics platform, Nexus 360, for both professional and consumer applications. CMP remains on track to develop its technologies around the 3D Transcranial Colour Doppler (3D TCCD)/Duplex imaging. Further, steady growth in sleep diagnostics with a greater emphasis on the neurodiagnostic monitoring market is expected to aid the company’s organic growth. 

Stock Recommendation: Currently, the stock is trading below the average of its 52-week high and low levels of $0.58 and $0.355, respectively. The stock went down ~14.28% in the past nine months period. Considering the increase in the cash balance, higher revenue base, increase in profits, robust product pipeline, resilient business model and decent growth opportunities, technical levels mentioned in the below para, current trading levels, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.415, up by ~1.219% as on 8 September 2021. 

Technical Commentary:

On the weekly chart, CMP prices are trading in an ascending triangle pattern and sustaining above the lower band of the pattern. Moreover, the prices are trading above the trend-following indicators 21-period SMA, indicating a positive trend. The leading indicator RSI (14-period) is trading at ~49.21 level. A crucial support level for the stock, is placed at AUD 0.35, while key resistance level is placed at AUD 0.49.

CMP Daily Technical Chart, Data Source: REFINITIV

Note: Purple color line in the chart shows RSI (14-period), red color lines indicate 21-period SMA, and yellow color line represents the trend lines.

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above. 

Technical Indicators Defined:-

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Disclaimer

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