Mach7 Technologies Limited

M7T Details

Mach7 Technologies Limited (ASX: M7T) provides medical imaging solutions. It provides Enterprise Diagnostic Viewing, Enterprise Data Management, and Enterprise PACS. The company operates in two segments – the sale of software and the rendering of professional services.

Significant Business Updates & H1FY22 Highlights:

• On March 7, 2022, M7T signed an SOW with Trinity Health. M7T will deploy its Enterprise Imaging platform along with other imaging solutions at Trinity Health’s facilities across southeast Michigan. Further, Penn State Milton S. Hershey Medical Center has signed a renewal and extension contract for M7T’s imaging platform.
• Effective from March 21, 2022, M7T has been removed from the All-Ordinaries index.
• In H1FY22, M7T posted an astonishing growth of 206% YoY in Total Contract Value (TCV), reaching $22.1 million. Annual Recurring Revenue (ARR) surged 64% to $13.4 million.
• During the period, it had received a $4.4 million contract from Advocate Aurora and $11.2 million from Trinity Health
• It had posted a record EBITDA of $3.1 million, an increase of 192% YoY aided by 64% growth in recurring revenues.
• It had posted a strong financial position with nil bank debt and a $20.2 cash balance (an increase of 40% YoY).

Key Financials (Analysis by Kalkine Group)

Key Risks: Increasing customer churns or delays in contract renewal may affect profitability. M7T is yet to turn profitability – a dearth in funding may affect its expansion plans. The healthcare industry has high regulatory oversight.

Outlook: M7T is expecting strong H1FY22 results to flow in H2FY22. EBITDA is expected to remain positive in H2FY22. The company has built a healthy pipeline with increasing interests in the form of tenders and channel partnerships. Its Enterprise Viewing solution gained significant traction during the COVID times.

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: The stock of M7T just recovered from its 52-week low price of $0.660. The stock has been corrected by ~26.06% in the past six months. The stock has been valued using an EV/Sales multiple-based illustrative relative valuation and arrived at a target price of low double-digit upside (in % terms). The company can trade at a slight premium to its peers, considering the recent contract win from Trinity Health. For the purpose of valuation, peers such as Volpara Health Technologies Ltd. (ASX: VHT), Pro Medicus Ltd. (ASX: PME), Alcidion Group Ltd (ASX: ALC), and others have been considered. Considering the healthy sales orders, strong growth in recurring revenues, positive EBITDA in H1FY22 over the prior year, nil bank debt, upside potential as indicated by the valuation, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the closing market price of $0.695, up ~0.72% as of 27 April 2022. Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

M7T Daily Technical Chart, Data Source: REFINITIV 

Decmil Group Limited

DCG Details

Decmil Group Limited (ASX: DCG) provides construction, engineering, and maintenance services. It caters to the energy, infrastructure, and construction sectors across Australia. DCG operates in two segments - Construction and Engineering and Accommodation.

Recent Business Wins & H1FY22 Highlights:

• On April 8, 2022, DCG announced that it had bagged two contracts worth $34 million in the lithium space. The contract wins provide an opportunity to showcase its offerings in lithium mining and processing.
• On April 19, 2022, the company’s Non-Executive Director Vin Vassallo will step in immediately into the role of interim CEO.
• DCG posted a 37% uptick in H1FY22 revenue reaching $226.5 million. An increase in the order book at the commencement of the reporting period contributed to such a rise.
• EBITDA dived from $5.6 million in H1FY21 to $1.5 million in H1FY22, owing to supply chain concerns and COVID-19 movement restrictions.
• The company charged $3.4 million towards contractual legal disputes, and as a result, it had reported a net loss of $4.0 million in H1FY22 as compared to a net profit of $0.6 million in the prior year.
• It had closed the period with a cash balance of $12.9 million as of December 31, 2021. This was compared to $9.7 million posted as of June 30, 2021. DCG received a $6.1 million final milestone payment from Sunraysia in February 2022 following the completion of the transaction in January 2022.

Key Financials (Analysis by Kalkine Group)

Key Risks: The ongoing supply chain worries and fears of lockdown risk due to the increasing spread of the new virus variant are the imminent downside risks.

Outlook: Due to ongoing supply chain concerns and border challenges, DCG has trimmed down its FY22 guidance with revenue expected to be in the range of $425-$450 million and EBITDA loss at $10-$15 million. Due to the timing of project completion and cost overruns, it may require booking the losses in projects in FY22 and is expected to recover some of the losses in FY23.

Stock Recommendation: The stock of DCG is trading lower than the average of the 52-week high-low band of $0.565-$0.096 The stock has been corrected by ~56.14% in the past three months. On a TTM basis, the stock is trading at an EV/Sales multiple of 0.1x as compared to the industry median of 0.5x (Construction & Engineering). This signals the stock is undervalued at current trading levels. Considering the contract wins in the lithium space, healthy revenue growth, increase in the cash balance, valuation based on TTM, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the closing market price of $0.125, up ~2.04% as of 27 April 2022. Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

DCG Daily Technical Chart, Data Source: REFINITIV 

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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