Pro Medicus Limited

PME Details

Signed New Research Collaboration Agreement: Pro Medicus Limited (ASX: PME) is a leading health imaging company that provides a range of radiology IT software and services to hospitals, imaging centres and health care groups worldwide. On 11 September 2020, the company announced that its wholly-owned U.S. subsidiary, Visage Imaging, Inc., has signed a multi-year Research Collaboration agreement with NYU Langone Health (NYU Langone), under which, both the parties will work together to design and develop next-generation products for enterprise imaging. The company is also planning to establish its own R&D Hub in New York City to leverage the development and commercialisation potential of its Visage AI Accelerator and other programs across its rapidly increasing base of North America’s top academic, research-oriented clients.

Signed a A$25 million deal with NYU Langone Health: In another update, the company also announced that Visage Imaging, Inc., has signed a 7-year contract with NYU Langone Health to implement Visage 7 technology across all of NYU Langone’s radiology and subspecialty imaging departments. The planning for the rollout is going to start in Q2 FY21, with the first sites scheduled to go-live in Q3 FY21. This deal with help the company in further expansion of its services and improved quality outcomes.

Growth Prospects: In a recent Q&A session, the CEO of Pro Medicus Limited, Dr. Sam Hupert assured that the company is in a unique position both in terms of its technology and its rapidly expanding footprint in the tier 1 academic space in North America. He informed that the company is planning to increase its research and development expenditure. He also assured that there are still a number of other opportunities in the pipeline that are progressing through the sales cycle.

FY20 Results Highlights: For FY20, the company reported total underlying revenue of $56.8 million, up 23.9% on the previous year, despite the restrictions of COVID-19. The revenue growth was mainly driven by the increases in transaction revenue in North American and as well as increased RIS sales in Australia. The reported profit after tax for the period stood at $23.08 million in FY20, up 20.7% from the previous year. At the end of FY20, the company had cash reserves of $43.4 million, up 34.3% on the previous year.

FY20 Results (Source: Company Results)

Key Risks: The company is exposed to foreign currency risk as results from its foreign subsidiaries are translated to Australian dollars for the purpose of reporting. Further, the company is exposed to the risks and uncertainties related to the COVID-19 pandemic and associated restrictions.

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (Illustrative)

Price to Earnings Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All forecasted figures have been taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: Over the last six months, the stock of PME has provided a return of 57.72% and is trading slightly above the average 52-week trading range. On the technical analysis front, the stock has a support level of ~$24.7 and a resistance level of ~$29.9. We have valued the stock using the price to earnings multiple based illustrative relative valuation method and arrived at a target price of high single-digit upside (in % terms). For the purpose, we have taken peers like ResMed Inc (ASX: RMD), Cochlear Ltd (ASX: COH), Nanosonics Ltd (ASX: NAN). Considering the recently signed $25m seven-year deal with NYU Langone Healthcare, the multi-year research/collaboration agreement with NYU Langone, the company’s rapidly expanding footprint in the tier 1 academic space and valuation, we are giving a “Hold” recommendation on the stock at the current market price of $26.26, up by 1.078% on 11 September 2020.

PME Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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