Volpara Health Technologies Limited

VHT Details

Volpara Health Technologies Limited (ASX: VHT) is a software application-based company, which is engaged in offering breast imaging analytics services and products. The company provides superior-quality and personalised breast cancer screening software applications to its patients.

Strong Growth in Revenue:  During FY21, the company reported strong revenue growth of 57% YoY to $19.75 million underpinned by a significant rise in subscription revenue which increased by 99% YoY to $18.1 million, reflecting ongoing transition to SaaS for MRS legacy products (VHT acquired MRS Systems, Inc. in 2019).

Improvement in Bottom-line: In FY21, the company’s net loss after tax stood at NZ$17.5 million, depicting an improvement of ~14% year over year, owing to an increase in revenues and the control of operating expenses. 

Key Data (Source: Company Reports)

Q1FY22 Update (ended 30 June 2021)

The period witnessed cash receipts from customers increasing by 19% YoY to  NZ$6.4 million, exhibiting 30% growth on Q1FY21 or over 50% growth in constant currency.  This result highlights VHT’s first quarter with receipts greater than NZ$6.0 million and now the eighth-straight quarter with receipts above NZ$4.5 million.

Key Data (Source: Company Reports)

Net operating cash outflow in Q1 stood at NZ$2.4 million.  However, on including the investment in intellectual property, outflow totaled NZ$3.2 million, reflecting 20% YoY improvement. ARPU increased from US$1.40 at the end of Q4FY21 to US$1.42 at the end of Q1, with an average ARPU for Q1 of US$1.55, ranging from US$1.06 (Volpara Scorecard customer only) to US$5.87 (a multi-product deal).

Recent Update:

• On 29 July 2021, the company informed the market it had received FDA clearance for the latest version of its key science algorithm, Volpara Imaging Software (VIS 3.2).

Outlook:

Volpara is a rapidly growing SaaS company and is focused on increasing ARPU through selling a platform including its all products. It has a pipeline of new orders. While it has a significant organic growth opportunity, it continues to probe inorganic growth opportunities with companies that could give expanded customer reach. The company experienced low churn during the pandemic on the back of ever-evolving products and ever-improving customer experience. The recent clearance from FDA for next generation algorithm and architecture is a key part of the company’s strategic move to attain greater scalability and lays the foundation for future new products.

The company expects revenue in FY22 to be approx. NZ$25.0 million to NZ$26 million.

Key Risks:

The company is susceptible to certain risks such as Stiff Competition; COVID-19 Led Uncertainties; Rising Expenditure; and Forex Headwinds.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Technical Overview:

Chart:

Source: REFINITIV

Note: Purple Color Line Reflects RSI (14-Period)

Stock Recommendation:

The company’s gross margin improved from 85.9% in FY20 to 91.4% in FY21. Its long-term debt to total capital for FY21 stood at 3.7%, lower than the FY20 result of 5.6%.

We have applied EV/Sales based relative valuation (on an illustrative basis) and the target price reflects a rise of low double-digit (in % terms). We have applied a slight premium to EV/Sales Multiple (NTM) (Peer Average) considering rise in gross profit as well as in revenue from contracts with customers.

Considering the aforesaid facts, and current trading level, we give “Buy” recommendation on the stock at the current market price of $1.100 per share, up by 3.286% on August 13, 2021.

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.

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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