MedAdvisor Limited

Company Overview: MedAdvisor Limited (ASX: MDR) is a developer of a medication management platform, MedAdvisor, to connect users with pharmacies and a network of GPs.  MDR works with ~25,000 pharmacies in the US to assist patients in taking their medication safely and effectively. MDR has connected to more than 2.3 million patients in Australia through over 65% of Australian pharmacies. The company has partnered with Cotiviti in the US to become one of the largest worldwide digital adherence markets.

MDR Details

Strategic Alliances & Decent Liquidity Aids MDR: The company remains optimistic about the progress of the Adheris integration and the robust prospects that occurs in the US market. Moreover, it has invested in a new line of business, which includes the partnership with Cotiviti and the new eHealth. The company has also unveiled new functionality for PlusOne in the UK market and remains on track to invest further in sales capability in the upcoming quarter with robust customer feedback.

Spotlight on 2QFY22 Results (Period Ended 31 December 2021):

• Rise in Operating Revenues: MDR reported $23.2 million of operating revenue, up by 121.7% YoY in Q2FY22. Notably, revenues went up by 17.5% on a like-for-like basis. Synergies from Adheris buyout and geographical expansion aided the top-line growth. For CY21, MDR’s reported revenues went up 20.1% on a like-for-like basis and came in at $64.5 million, exceeding the previously upgraded revenue guidance of $59-$60 million.
• Strong foothold in the US Market: MDR has posted continuous growth in the US market after acquiring Adheris in November 2020. In 2QFY22, the company reported $19.9 million in US revenue, depicting a rise of 15.6% (on a like-for-like basis) from 2QFY21. Notably, the US pipeline depicts a rise of 150.6% at the same time last year.
• Geographical Expansion: During the quarter, the company’s revenue from Australia witnessed a growth of 30.5% on a year-over-year basis, depicting higher returns from investment in sales capability. MDR reported growth in the digitalisation of the US Pharmacy network in 2QFY22. The Pharmacy network grew to more than 4,000 as at 31 December 2021, up from ~3,700 stores at 30 June 2021.
• Liquidity Position: MDR reported $2.57 million of net cash outflow from operating activities in Q2FY22. As of 31 December 2021, MDR held $5.33 million of cash. The company generated $21.1 million cash receipts from operations in Q2FY22, up by 96.8% on pcp.

Key Results; Analysis by Kalkine Group

Acquisition of Cotiviti & Adheris: The company successfully combined with Cotiviti owned HMS to run a patient discharge program in Australia. It also unveiled initial health programs via its secure digital platform. Earlier, the company bought Adheris, a medication adherence company based in the USA. The move aids the company to strengthen its leadership position in medication adherence in the world’s largest healthcare market.

Managerial Changes: On 1 February 2022, the company appointed Ms RaeAnn Grossman as a non-executive director and appointee of Cotiviti, Inc. (Cotiviti), effective immediately.

Key Metrics: In FY21, the company recorded a cash cycle of 17.8 days, compared to the year-ago figure of 49.1 days.

Profitability Metrics & Liquidity Profile; Analysis by Kalkine Group  

Top 10 Shareholders: The top 10 shareholders together form around 51.73% of the total shareholdings, while the top 4 constitutes the maximum holding. Cotiviti, Inc. held the maximum number of shares with a percentage holding of 11.64%, followed by Regal Funds Management Pty. Ltd. holding 7.72%, as also highlighted in the chart below: 

Top 10 Shareholders; Analysis by Kalkine Group

Risk Analysis:

• Increase in Losses: The company posted a loss after income tax of $14.37 million in FY21, compared to the loss of $9.78 million in the corresponding prior period. The rise in losses can primarily be driven by higher expenditure and investment in new markets and acquisition and restructuring costs stemming from the Adheris acquisition. Hence, these mounting losses may throw tough challenges at the company’s overall functioning and may dampen margins in the future.
• Other Potential Headwinds: Any adverse movement in foreign exchange price may impact the company's financial performance. The company is also exposed to general global economic and market conditions risks. Further, the complex regulatory landscape, supply chain disruption, integration risk, and risks of losing key patients add to the woes.

Outlook: MDR expects FY22 revenues to be in the range of $72-$74 million, with ~53-54% gross margin. Further, the company’s dynamic engagement, is expected to drive a new revenue model & increase margins in the USA. Also, the company expects to be in a positive cash position by mid-CY22.

Further, both the US and the UK markets represent a significant opportunity for MDR to deploy and monetise its sophisticated digital medication adherence solutions. The company continued to run Secure Digital programs with Cotiviti and have made a substantial investment in gross margin, which ensures the successful renewal of the programs for CY22 and beyond.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative) 

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The stock of the company went down by ~12.8% in the past three months. Currently, the stock has a 52-week high and low levels of $0.415 and $0.23, respectively. The stock has been valued using an EV/Sales multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight discount as compared to its pees, considering mounting losses, forex headwinds, loss of key customers, stringent regulations, etc. For the purpose of valuation, peers such as Cogstate Ltd (ASX: CGS), Doctor Care Anywhere Group PLC (ASX: DOC) and Sonic Healthcare Ltd (ASX: SHL) have been considered. Considering the robust revenue base, strategic alliances, encouraging outlook, current trading levels, geographical expansion, indicative upside in the valuation, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the closing market price of $0.335 as on 16 February 2022.

MDR Daily Technical Chart, Data Source: REFINITIV

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:-

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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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