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

PME Details

PME Rides on Geographical Expansion & Contract Wins: PME’s wholly-owned U.S. subsidiary, Visage Imaging, Inc., inked a 7-years contract with Novant Health, Inc. for a contract value of $40 million. The move is expected to extend PME’s rapidly growing footprint in the North American integrated delivery network (IDN) market. The company also experienced a record sale with six major contracts, five in North America and one in Europe. Despite the COVID-19 restrictions, PME also renewed contracts with several existing clients. The above strategy is expected to support its position as a market leader and enable the group further to leverage its expanded product portfolio and geographical reach.

Focus on FY21 Key Numbers & Past Performance:

• Looking at the performance over a period of 5 years covering FY17 – FY21, the company has reported a remarkable top-line CAGR of ~21%, with FY17 and FY21 revenue amounting to ~$31.59 million and ~$67.88 million, respectively.
• Underlying EPS CAGR for the above-mentioned period stood at ~35%, with FY17 and FY21 EPS of ~9.37 cents per share and ~31.08 cents per share, respectively. Moreover, the company has maintained a continuous upward trend in underlying EBIT and Annual contract value in all these five years.
• The strong result was driven by growth in all three jurisdictions (North America, Australia, and Europe) in which the company operates.

Past Performance Over a Period of 4 Years Covering FY17 – FY21; Analysis by Kalkine Group

Higher Investments to Support Future Growth: 

• In FY21, the company made an ongoing R&D investment in Visage 7 Viewer, Visage Open Archive and Visage Workflow products, all of which contributed to the company’s performance.
• PME also remains on track to invest further in Visage RIS products, for further development in the business.
• Moreover, the company continued to invest higher and expanded its geographical footprints via two key contracts with Mayo Clinic and NYU Langone Health.

Performance by Geography & Liquidity Position:

• In terms of geography, the company has seen remarkable uplift in the North American business, which was a key contributor to FY21 results. In addition, the company witnessed solid contributions from other geographies, including Australia and Europe.

• At the end of the period, cash reserves amounted to ~$42 million. The company had a strong balance sheet position with negligible debt at the end of the period.

Key Financial Highlights; Analysis by Kalkine Group

Key Metrics: EBITDA margin for FY21 stood at 73.2%, which is higher than the year-ago figure of 66.5%. Net margin for the year stood at 45.3%, better than the prior corresponding year’s net margin of 40.5%. Current ratio for the period stood at 4.97x, up from FY20 current ratio of 4.84x, demonstrating improved short-term financial liquidity.

Profitability & Liquidity Profile; Analysis by Kalkine Group 

Top 10 Shareholders: The top 10 shareholders together form around 57.29% 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 25.97%, respectively, as also highlighted in the chart below: 

Top 10 Shareholders; Analysis by Kalkine Group 

Risk Analysis:  

Key Risks; Analysis by Kalkine Group

Outlook:

• Looking ahead, PME will remain focused on developing new products and continued development of its Visage RIS and Visage 7.0 product sets.
• The year 2022 is expected to be a period of increased revenues from previously won transaction-based contracts. Moreover, the next financial year will bring in more opportunities due to improved prospects in North America and the continued commercialisation and roll out of Visage RIS, the company’s new technology RIS platform.
• The company is focusing on growing its Visage 7.0 product to emphasise on key market segments such as large Health Systems and Hospitals.
• PME remains on track to invest higher in its best of breed suite of innovative products, thus aiming to retain its market leadership. The company is set to report its 1HFY22 results on 16 February 2022.

Stock Recommendation: The company's stock has been corrected by ~23.30% in the past month. Currently, the stock is trading below its 52-weeks’ high and low levels of $70 and $38, respectively.  Taking into consideration the financial performance in FY21, anticipated benefits from major contracts, continued investment for product development and portfolio expansion, and expected contribution from the North American region, the company’s ability to deliver sufficient returns to shareholders, looks bright. Given the aforementioned factors, PME’s diversified portfolio, geographical expansion, enhancing shareholder’s value, long-term outlook, current trading levels, and technical analysis mentioned below, we recommend a “Buy” rating on the stock at the current market price of $47.29 as on 2 February 2022, 12:30 PM (GMT+10), Sydney, Eastern Australia.

Technical Commentary

On the daily chart, PME prices are sustaining above the horizontal trend line support zone and taking the support of the same. Moreover, the momentum oscillator RSI (14-period) is trading at ~42.46 level, reversing from the lower levels. However, the prices are trading below the trend-following indicators 21-period and 50- period SMA, which may act as a resistance level for the stock. An important support level for the stock, is placed at AUD 42.70 while the key resistance level is placed at AUD 55.20.

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.

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