Company Overview: Mach7 Technologies Limited (ASX: M7T) is engaged in the provision of enterprise imaging data sharing, storage and interoperability for healthcare companies. It develops data management solutions that help to create a clear view of the patient's diagnosis. It helps in the reduction of delays in care delivery and costs and assists on cost improvement.
M7T Details
Decent Performance on the Back of Increase in Sales Orders: Mach7 Technologies Limited (ASX: M7T) provides enterprise image management systems that enable healthcare firms to identify, connect, and share diagnostic image and other reports as per need. The market capitalisation of the company as on 29 June 2021, stood at ~$248.15 million. The company has reported decent increase in annuity SAAS revenue with a CAGR of ~47% delivered through FY17-20. It expects revenues to be in the range of ~$10.5 - $11 million in FY21. It also generates revenue in the form of software license fees and professional services fees.
M7T posted robust performance in Q3FY21 with quarterly cash receipts at $8.4 million, reflecting an increase of ~98% on the previous quarter. It generated $12.84 million of new sales orders during the quarter, with YTD figure reflecting at ~$23.58 million. The cash flow from operations stood at $3.3 million, an increase of ~375% on Q2FY21. It has also reported an improvement in the cash position to ~$18 million during the period end, from a level of $14.4 million in Q2FY21. The company has signed new contracts and sales orders during the quarter with existing customers, which includes Adventist Health System West, Metro Health, Ambra Health, etc., to name a few.
Cash Balance (Source: Analysis by Kalkine Group)
Subscription Deal with University of Vermont Medical Center (UVM): As per a recent announcement, the company has signed a statement of work with the University of Vermont Medical Center (UVM) in regards to the license of its eUnity diagnostic viewing technology. The license agreement is expected to generate an additional $730,000 of subscription fee revenue over a period of five years. The contract is also expected to deliver more than 90% in gross margins.
Award of 2021 Product Leadership Award: The company has been awarded the 2021 Product Leadership Award for Global Enterprise Imaging Solutions by the leading business and consulting firm Frost & Sullivan. The award validates the company’s business strategy and operating model and confirms the value the company brings in to the global healthcare community in driving quality care and patient outcomes.
Top 10 Shareholders: The top 10 shareholders together form around 37.67% of the total shareholding, while the top 4 constitute the maximum holding. JM Financial Group Ltd. and Clime Investment Management Ltd. are holding a maximum stake in the company at 11.10% and 9.22%, respectively, as also highlighted in the chart below:
Top 10 Shareholders (Source: Analysis by Kalkine Group)
Key Metrics: The company reported an improvement in the gross margin to 95.1% in H1FY21, compared to 90% in H1FY20. ROE of the company stood at a negative 13.1% in H1FY21. It reported the current ratio at 2.74x during the period.
Growth Profile and Profitability Metrics (Source: Analysis by Kalkine Group)
Key Risks: The company works in a niche working space, and there is a risk that the Group will not be able to attract enough customers to remain profitable. It is also prone to new technology risks which is inherent to the industry due to the presence of business criticality in the sector. M7T is also exposed to stiff competition in the space by its peers who may come up with new and cheaper technologies that might have an impact on the company’s market share. Moreover, it is also prone to strict regulatory purview that may limit its earnings.
Outlook: The company is expecting high demand for enterprise viewing solutions in the midst of the COVID-19 pandemic. It anticipates that the focus on IT healthcare spend will create more opportunities for enterprise imaging solutions in the future. It expects the pipeline conversion to accelerate as customers begin to work in full capacity. It also expects receipt of purchase orders for Trinity Healthcare and Adventist Health as they roll out Mach7 solutions in FY2022.
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: On 7 June 2021, the company has announced that it has appointed Mr. David Madaffri as its new Senior Vice President of Global Sales. He will look to enhance Mach7’s sales strategy and further look to improve on its branding and market share. As per ASX, the stock of M7T is trading below its average 52-weeks’ levels of $0.812-$1.590. The stock of M7T gave a positive return of ~10.10% in the past one year and a negative return of ~14.31% in the past six months. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation and have arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at a slight premium to its peer median EV/Sales (NTM trading multiple), considering the decent increase in customer receipts, increase in new sales orders and net cash position of the company. For this purpose, we have taken peers such as Nanosonics Ltd (ASX: NAN), 4DMedical Ltd (ASX: 4DX), Volpara Health Technologies Ltd (ASX: VHT), to name a few. Considering the expected upside in valuation and current trading levels, impressive performance in Q3FY21, signing of new contracts, new subscription deals, strong balance sheet and the key risks associated with the business (as stated above), we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $1.050 (as on 29 June 2021, 11:32 AM (GMT+10), Sydney, Eastern Australia).
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M7T Daily Technical Chart, Data Source: REFINITIV
Note 1: The reference data in this report has been partly sourced from REFINITIV
Note 2: Investment decisions 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 analysis has been achieved and subject to the factors discussed above alongside support levels provided.
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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.
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