Stocks’ Details

Pro Medicus Limited

PME Releases RSNA Update:Pro Medicus Limited (ASX: PME) is primarily engaged in the supply of healthcare imaging software and services to hospitals, diagnostic imaging groups and other health related entities in Australia, North America and Europe.

At the 2019 Annual General Meeting, the company updated that the results to date stood ahead of the budget, representing good growth prospects. As per the release dated 16 December 2019, the company stressed upon the strong cash inflow reported post balance date on account of a significant increase in trade receivables. In the view of the management, FY20 is expected to be another year of strong growth, majorly in the second half.

The company will showcase Visage AI Accelerator at the Radiological Society of North America (RSNA) 2019 meeting in Chicago. The product is a complete “end to end” platform for AI that entails the daily workflow of a radiologist. The company will also showcase its new Breast Density algorithm that delivered promising results, depicting the potential for commercialisation and FDA approval. Sam Hupert, CEO of Pro Medicus, stated that the RSNA impacts three major customer groups in its pipeline and the company saw increased attendance and quality of personnel from all the three groups.

FY19 Results Highlights:During the year ended 30 June 2019, the company reported revenue amounting to $50.11 million, up 48% on prior corresponding year revenue of $33.87 million. NPAT came in at $19.13 million, up 92% on pcp NPAT of $9.97 million.


FY19 Financial Highlights (Source: Company Reports) 
 
Valuation Methodology:Price to Earnings Multiple Approach

Price to Earnings Based Valuation (Source: Thomson Reuters)
 
Stock Recommendation: The stock of the company generated a negative return of 6.83% over a period of six months. In FY19, the company reported an improvement in profitability with complete focus on its strategic plans. Moreover, the company is continuously investing on innovative products to position in the market. As discussed in the above section, it will be showcasing its two specialities, i.e., Visage AI Accelerator and the Breast Density Algorithm at the RSNA 2019 meeting. Considering the above factors, we have valued the stock using Price to Earnings based relative valuation method and arrived at a target price with single-digit upside (in % terms). Hence, we give a “Buy” rating on the stock at the current market price of $22.760, up 1.698% on 17 December 2019.

Appen Limited

Increase in FY19 Earnings Guidance Signals Growth: Appen Limited (ASX: APX) is engaged in the provision of quality data solutions and services for machine learning and artificial intelligence applications for global technology companies, auto manufacturers and government agencies. As per a recent announcement released on 09 December 2019, the company issued 123,903 fully paid ordinary shares on account of the acquisition of Leapforce, Inc. and Raterlabs, Inc.

Half Yearly Performance: During the first half ended 30 June 2019, the company reported strong core performance with Speech and Image revenue increasing at a rate of 85% on pcp. Overall revenue of the business went up by 60%.

1H 2019 Highlights (Source: Company Reports)

Guidance: Underlying EBITDA for the year ending 31^st December 2019 is expected to be in the range of $96 million - $99 million, at an exchange rate of A$1 = US$0.74 for performance in November and December. At the current translation levels, underlying EBITDA is expected to be $1.0 million - $1.5 million than the above specified range. The above forecast replaces the previous guidance range of $85 million - $90 million. The improvement in earnings guidance came in as a result of increase in monthly relevance revenues and margins, mainly from existing projects with existing customers. FY19 ARR is expected to be in the range of $30 million - $35 million.

Valuation Methodology:Price to Earnings Multiple Approach

Price to Earnings Based Valuation (Source: Thomson Reuters)

Stock Recommendation: The stock of the company generated a negative return of 9.11% over a period of six months. The company has seen remarkable results from Figure Eight execution, which has helped the company to diversify its revenue and expand the markets served. Expected synergies and profitability from the acquisition are well on track. Considering the performance in the first half, increase in earnings guidance, strong customer relationships and contribution from Figure Eight’s acquisition, we expect APX to continue on the growth path and have valued the company using Price to Earnings based relative valuation method and arrived at a target price with lower double-digit upside (in % terms). Hence, we give a “Buy” rating on the stock at the current market price of $24.010, up 1.997% on 17 December 2019.

IPH Limited

Business to Benefit from Acquisition Synergies:IPH Limited (ASX: IPH) provides IP services related to provision of filing, prosecution, enforcement and management of patents, designs, trademarks, etc. The company also develops IP data and analytics and autonomous timekeeping software. On 13 December 2019, the company released an announcement regarding issue of 905,496 Performance Rights.

FY19 Performance: During the year ended 30 June 2019, the company reported statutory net profit after tax amounting to $53.1 million, representing an increase of 31% on prior corresponding year. EBITDA for the year came in at $85.9 million, up 23% on the previous year. Diluted earnings per share came in at 26.7 cents, up 29% on prior corresponding year. During the year, the company paid a 60% franked final dividend of 13 cents per share, bringing full year dividends to 25 cents per share. During the year, the company acquired Xenith IP Group on 15 August 2019, which will support its vision to be the leading IP group in secondary IP markets and adjacent areas of IP. 
 

FY19 Financial Highlights (Source: Company Reports)

Outlook: The acquisition of Xenith is expected to provide net cost and revenue synergies of ~3.4 million in FY20, after the implementation of the staff incentive plan, which is an important aspect to retain key contributing members of the organisation.

Stock Recommendation: The stock of the company generated a return of 41.88% over the period of one year. In FY19, the company reported an 11% increase in dividend, driven by strong performance. The period saw double-digit growth across key financial metrics along with the largest acquisition since listing. The acquisition of Xenith will strengthen the business offerings and is expected to provide annualised net financial benefits in the range of $2 million - $2.5 million from FY21. Currently, the stock has an EV/Sales multiple of 5.5x, higher than the industry median of 1.6x. EV/EBITDA multiple stands at 16.9x, higher than the industry median of 6.7x. Despite the above valuation scenario, the business depicts growth potential on the back of the recent acquisition of Xenith. Given the backdrop of the above factors, we give a “Hold” recommendation on the stock at the current market price of $8.590, up 3.494% on 17 December 2019.
 
 
Comparative Price Chart (Source: Thomson Reuters)

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