Mach7 Technologies Limited

M7T Details

Directors’ Interest Notice: Mach7 Technologies Limited (ASX: M7T) is engaged in providing enterprise imaging solutions for healthcare groups and operates predominantly in the United States, Asia Pacific, and the Middle East region. In a recent update, the company informed the market that Robert Bazzani, a company’s director, has acquired 25,000 unlisted options for nil consideration.

A Quick Look at FY21 Key Results:

• In FY21, the sales order stood at $25.64 million, up 95% over the prior year, depicting that the company is actively growing its recurring revenue base.
• The company completed the transformational acquisition of Client Outlook, which, in turn, aided the company to increase its portfolio cross-selling opportunities.
• The company’s cash position stood at $18.36 million as of 30 June 2021 vs $48.87 million as of 30 June 2020.

Digging into 1QFY22 Results:

• During the quarter, the company reported Contracted Annual Recurring Revenue (CARR) of $16.8 million, up from $15.8 million as of Q4FY21 end, owing to decent traction in sales during the quarter, which contributed a further ~$1 million to CARR.
• M7T reported sales orders of $16.2 million (TCV) in 1QFY22, indicating a robust increase of 368% on Q4FY21, which stood at $4.4 million.
• The company maintains a strong financial position and ended the quarter with a cash balance of $17.2 million and nil debt.

Cash Balance (Source: Analysis by Kalkine Group)

Update on Patent Litigation: The company recently informed the market that it plans to stand up for itself against accusations of patent infringement caused by AI Visualize, Inc. Per the allegations, Mach7’s eUnity viewer when used together with Nuance Communication’s PowerShareTM Network, infringes upon four United States patents. Notably, the company opines that these charges are of no importance, and the company remains well placed to continue the development and support of the eUnity enterprise viewing solution.

Key Risks: The company is exposed to technology risk and should invest in innovation to mitigate the risk of competition. The sector is also under the strict purview of regulatory bodies, and the adverse impact of regulatory decisions might have a direct impact on the profitability of the company.

Outlook: M7T’s revenues have been boosted by the decent performance in Q1FY22, and it remains on track to achieve its near-term target of $27 million in revenue for the calendar year 2021. Further, the company expects $23.1 million of minimum revenue in FY22. It also anticipates delivering a positive EBITDA for FY22.

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 the company has been corrected by ~40.8% in the past nine months. Currently, the stock is trading close to its 52-week low level of $0.82. The stock has been valued using an EV/Sales multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight discount as compared to its peers, considering the decline in cash balance, uncertain trading conditions due to the impact of COVID19, legal hassles, stiff competition in the sector, etc. For the purpose of valuation, peers such as Nanosonics Ltd (ASX: NAN), Adherium Ltd (ASX: ADR), Cochlear Ltd (ASX: COH), and others have been considered. Considering, synergies from buyout, robust sales order growth, current trading levels, indicative upside in valuation, decent outlook, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.880, as on 22 November 2021, 3:00 PM (GMT+10), Sydney, Eastern Australia.

Investors with a high-risk appetite should evaluate this stock given the technical support and resistance levels and consider associated risks of COVID-19, regulatory hurdles, and litigation cases.

M7T Daily Technical Chart, Data Source: REFINITIV

Compumedics Limited 

CMP Details

Delve Into FY21 Highlights: Compumedics Limited (ASX: CMP) develops, produces, manufactures, and markets medical devices used for the analysis of brain and sleep disorders.

• In FY21, the company reported an EBITDA profit of $2.6 million, compared to a loss of $5.4 million reported in FY20. EPS for the period came in at 0.6 cents as compared to a loss of 3.3 cents reported in FY20.
• In FY21, core business sales orders stood at $35.3 million, flat on a year-over-year basis. Nevertheless, on a constant currency basis, it went up by 8% on pcp, owing to diversified revenue streams and growth across France, Germany, and other parts of Europe.
• The company has come up with growth initiatives in eHealth and has expanded the NeXus 360 platform in Australia and the USA. The Nexus 360 platform generated A$1.1 million in revenue in FY21.
• The company exited FY21 with a cash balance of $6.77 million, up from $6.41 million at the end of 30 June 2020. Total debt amounted to ~$5.82 million at the end of the period.

Geographical Representation of Revenue (Source: Analysis by Kalkine Group)

Risk Analysis:  The company is exposed to a complex regulatory landscape, forex headwinds, and stiff rivalry along with prevailing global uncertainties related to COVID-19.

Outlook: The ongoing investment in the core business, along with pursuing commercial opportunities for both the MEG and Somfit technology platforms, is expected to result in sound profitability across its business. CMP remains on track to develop its neuro-diagnostic business in the US and China, as well as other key markets across the globe. 

Stock Recommendation: Currently, the stock is trading at par to its 52-week low level of $0.345. The stock went down ~37.27% in the past year. On a TTM basis, the stock of CMP is trading at an EV/Sales value multiple of 1.7x, lower than the industry (Healthcare Equipment & Supplies) median of 9.7x, thus seems undervalued. Considering the current trading level, healthy balance sheet, rise in top-line, geographical diversification, a turnaround in profits, robust product pipeline, decent growth opportunities, valuation on TTM basis, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the closing market price of $0.345, down by ~1.429% as on 22 November 2021.

CMP 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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