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.  The company works with around 25,000 pharmacies in the US to assist patients to take their medication safely and effectively. The company has approximately 195 employees globally and has partnered with Cotiviti in the US to become one of the largest players in the worldwide digital adherence market.

MDR Details

MDR Rides on Geographical Expansion & Strategic Alliances: The company remains well placed with a mission to strengthen its foothold in the growth markets with larger patient populations via Adheris acquisition.  MDR has invested further in sales and business development capabilities, as well as a transformational project, which aided it to leverage its’s digital assets and Adheris’ data analytical capabilities.

Delve into 1QFY22 Results (Period Ended 30 September 2021):

• Rise in Operating Revenue: MDR reported $15.4 million of operating revenue, up by 531.9% YoY in Q1FY22. Notably, revenues went up by 35.6% on a like-for-like basis, from the prior year’s corresponding quarter. Synergies from Adheris buyout and geographical expansion aided the top-line growth.
• Higher Cash Receipts: The company generated $21.2 million cash receipts from operations in Q1FY22, up by 53% QoQ.
• Growth in the US Region: MDR has posted continuous growth for four quarters in the US market after acquiring Adheris in November 2020. In 1QFY22, the company reported $12.1 million in US revenue, depicting a rise of 34.1% (on a like-for-like basis) from 1QFY21. Notably, the US pipeline depicts a rise of 40% on same time last year with ~20% of the pipeline relating to Dynamic Engagement proposals.
• Growth Witnessed in the Australian Region: During the quarter, the company’s revenue from Australia witnessed a growth of 35.4% on a year-over-year basis. Higher investments in the sales capability and capacity of the team, delivered a positive impetus in the growth of the network. Robust patient sign ups, and the health program pipeline in 1QFY22, led to a rise of 23% on pcp in the annual recurring revenue from MDR’s Australian region.
• Digital Growth of Pharmacy Network: MDR reported growth in the digitalisation of the US Pharmacy network in 1QFY22. Notably, ~37% of stores agreed to proceed to digitalisation, including the recently announced Walmart contract. This signifies a digital patient reach of more than 45 million patients in the US.
• Liquidity Details: MDR reported $1.7 million of net cash flow from operating activities in Q1FY22. As of 30 September 2021, MDR held $8.7 million of cash, up from $7.2 million of cash reported as of 30 June 2021.

Key Findings from FY21 Results:

• Rise in Total Revenues: In FY21, the company reported total revenues of ~$40.3 million, up from $11.1 million in the year-ago period.
• 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 prior corresponding period. The rise in losses can primarily be driven by higher expenditure. EBIT loss in FY21 stood at $16.9 million, against a loss of $9.8 million in FY20, owing to higher investment in new markets and acquisition and restructuring costs stemming from the Adheris acquisition.
• Acquisition of Adheris: On 17 November 2020, 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.
• Rise in Net Assets: Net assets as of 30 June 2021, came in at $48.8 million, up from $17.0 million from the end of FY20, indicating the transformative change from the Adheris acquisition.

The below picture depicts a decent momentum in MDR’s total operating revenues since FY18.

Key Trend; Analysis by Kalkine Group

MDR Enters New Agreement in the US: Recently, the company informed the market that it has signed the latest deal with an existing long-term customer for a digital COVID-19 patient awareness program in the US. The pilot is projected to be completed by the end of the second quarter and revenues will be up to US$3 million (AU$4 million), subject to the final number of patients reached.

Key Metrics: For FY21, the company’s EBITDA, operating and net margins improved on a year-over year-basis. In FY21, the company recorded a cash cycle of 17.8 days, compared to the industry median of 29.1 days.

Liquidity Profile; Analysis by Kalkine Group 

Top 10 Shareholders: The top 10 shareholders together form around 53.08% 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 11.66%, followed by Perennial Value Management Ltd. holding 8.85%, as also highlighted in the chart below: 

Top 10 Shareholders; Analysis by Kalkine Group

Risk Analysis:

• Mounting Losses: MDR’s net loss is increasing on a year-over-year basis. Hence, these mounting losses may throw tough challenges at the company’s overall functioning and may dampen margins in the future.
• Forex Headwinds: Any adverse movement in foreign exchange price may impact the financial performance of the company.
• COVID-19 Uncertainties: The company is exposed to risks associated with general global economic and market conditions.
• The company is also exposed to a complex regulatory landscape in the healthcare space, supply chain disruption, integration risk, and risks of losing key patients.

Outlook: The company remains positive with the progress of the Adheris integration and the robust prospects that occurs in the US market. MDR has revised its CY21 revenue outlook from $55-$57 million to $59-60 million, with ~55% gross margin. Further, the company expects dynamic engagement, to drive a new revenue model & increase margins in the USA starting from CY22. Also, both the US and the UK markets, represent a significant opportunity for MDR to deploy and monetise its sophisticated digital medication adherence solutions.

Stock Recommendation: The stock of the company went up by ~4.05% in the past nine months. Currently, the stock has a 52-week high and low levels of $0.425 and $0.23, respectively. On a TTM basis, the stock of MDR is trading at an EV/Sales multiple of 3.7x, lower than the industry median (Healthcare Equipment & Supplies) of 9.6x, thus seems undervalued. Considering the higher revenue base, acquisition synergies, strategic alliances, revised upgraded view, current trading levels, geographical expansion, technical levels as mentioned below, valuation on TTM basis, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the closing market price of $0.38, down by ~1.299% as on 24 November 2021.

Technical Commentary:

MDR's prices are sustaining above a downward sloping trend line breakout level, indicating the possibility of an upside movement in the stock. On the weekly chart, the leading indicator RSI (14-period) is trading above mid-point at ~58.06 levels which support a positive stance. The CMP is sustaining above the trend following indicators 21-period SMA and 50-period SMA, further suggesting an upside direction. Now an immediate support level for the stock appears at AUD 0.34, while resistance is at AUD 0.45.

MDR Weekly Technical Chart, Data Source: REFINITIV

Note:  The purple color line in the chart depicts RSI (14-period), while the yellow color line represents the trend line. The blue and red color lines show 21-Period SMA and 50-Period SMA, respectively, while green color histograms at the bottom of charts represent weekly volumes.

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.

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