Pro Medicus Limited

Company Overview: Pro Medicus Limited (ASX: PME) offers a full range of radiology IT software and services to hospitals, imaging centres and health care groups worldwide. The company purchased Visage Imaging in January 2009, transforming it into a global provider of leading-edge enterprise imaging solutions. The company was listed on ASX on 10 October 2000.

PME Details

Contract Wins & Geographical Expansion Aid PME: Recently, the company informed the market that, its wholly owned U.S. subsidiary, Visage Imaging, Inc., inked an 8-years contract with Inova Health System for a contract value of $32 million.

Contract Win Snapshot; Analysis by Kalkine Group

Emphasis on 1HFY22 Results:

• Higher Investments: In 1HFY22, PME made an ongoing R&D investment in Visage 7 Viewer, Visage Open Archive and Visage Workflow products, all of which added to the company’s performance. Moreover, the company continued to invest higher and expanded its geographical footprints via two key contracts with Novant Health and Allegheny Health.
  
  
• Geographical Diversification: The company has seen remarkable uplift in the North American business, which was a key contributor to 1HFY22 results. Also, its pipeline remains solid with a good spread of prospects in different markets. PME is looking forward to building on its presence in different geographies and is actively pursuing an increasing number of prospects within the enterprise imaging, integrated delivery network and corporate imaging centre markets.

Financial Performance; Analysis by Kalkine Group

Key Metrics: EBITDA margin for 1HFY22 stood at 72.5%, higher than the year-ago figure of 70.8%. The net margin for the year stood at 46.3%, compared to the previous corresponding period figure of 42.7%.

Profitability Profile; Analysis by Kalkine Group 

Top 10 Shareholders: The top 10 shareholders together form around 57.39% of the total shareholdings, while the top 4 constitutes the maximum holding. Hupert (Sam Aaron) and Hall (Anthony Barry) are holding a maximum stake in the company at 26% and 25.98%, respectively, as also highlighted in the chart below: 

Top 10 Shareholders; Analysis by Kalkine Group 

Risk Analysis:  The company is exposed to risks related to the complex regulatory landscape in the healthcare industry. Volatilities in the foreign currency, risk of losing new and existing market share, cyber security risks and increase in expenditure add to the woes.

Outlook: The company’s pipeline remained strong with an increased focus on developing new products and continued developing its Visage product sets. The year 2022 is anticipated to be a period of increased revenues from previously won transaction-based contracts. The company is focusing on growing its Visage 7.0 product to emphasise key market segments such as large Health Systems and Hospitals. PME aims to retain its market leadership by investing higher in innovative products.

Valuation Methodology: P/E 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 has been corrected by ~35.15% in the past six months. Currently, the stock is trading close to its 52-week low level of $39.08. The stock of the company has been valued using the P/E multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at some premium compared to its peers, consideration the anticipated benefits from major contracts, continued investment for product development and portfolio expansion, expected contribution from the North American region, sufficient returns to shareholders, etc. For the purpose of valuation, peers such as Nanosonics Ltd (ASX: NAN), Fisher & Paykel Healthcare Corporation Ltd (ASX: FPH) and others have been considered. Taking into account the aforesaid fact, increase in top and bottom line in 1HFY22, diversified portfolio, geographical expansion, enhancing shareholder’s value, encouraging long-term outlook, current trading levels, and indicative upside in the valuation, we recommend a “Buy” rating on the stock at the closing market price of $40.23, up by ~0.299%, as on 18 May 2022.

PME Daily Technical Chart, Data Source: REFINITIV 

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.

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.

Disclaimer

Kalkine New Zealand Limited is authorised to provide general advice only. The information on this website does not take into account any of your investment objectives, financial situation or needs. Before you make a decision about whether to acquire a financial product, you should obtain the Product Disclosure Statement from the product issuer. You should consider the appropriateness of advice taking into account your own objectives, financial situation and needs and seek independent financial advice before making any financial decisions.