Pro Medicus Limited

PME Details

Signing of Deals by Subsidiary Visage Imaging, Inc: Pro Medicus Limited (ASX: PME) provides a range of radiology IT software and services to hospitals, imaging centres and health care groups worldwide. The market capitalisation of the company stood at ~$3.31 billion as on 14^th January 2021. Recently, the company’s wholly owned subsidiary, Visage Imaging, Inc, has inked a 7-year contract of $40 million with Intermountain Healthcare. This contract is based on a transactional licensing model, which would witness the implementation of Visage 7 Viewer and Visage 7 Open Archive products in all of Intermountain’s radiology and subspecialty imaging departments. On 17^th December 2020, Visage Imaging, Inc signed a 5-year deal of $18 million with MedStar Health.  Under the terms of the deal, the company would implement Visage 7 Viewer, Visage 7 Open Archive and Visage 7 Workflow into MedStar’s radiology and subspecialty imaging departments.

Financial Highlights: Despite the restrictions of COVID-19, the company reported total underlying revenue of $56.8 million in FY20, reflecting a rise of 23.9% over FY19, which was mainly driven by the increase in transaction revenue in North American and 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.

Revenue Breakdown (Source: Company Reports)

Outlook: Going forward, the company is focused on increasing its product pipeline. In addition, the company would also be focused on the growing its footprint in North America.

Valuation Methodology: Price to Cash Flow Multiple Based Relative Valuation (Illustrative)

Price to Cash Flow Multiple Based Valuation (Source: Refinitiv, Thomson Reuters)

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

Stock Recommendation: The company closed FY20 with a strong balance sheet, which was comprised by the growth of 34.3% in cash reserves to $43.4 million and nil debt. The stock of PME has moved up by 16.93% and 46.84% in the last three and six months. As a result, the stock is trading towards its 52-week high level of $36.620. Considering this, we have valued the stock using the price to cash flow multiple based illustrative relative valuation and arrived at a target price with correction of low double-digit (in percentage terms). For the purpose, we have taken peers such as Cyclopharm Ltd (ASX: CYC), Nanosonics Ltd (ASX: NAN) and Cochlear Ltd (ASX: COH), to name few. In addition, we have considered 14-day RSI, and it was observed that the stock is currently in the overbought zone and may witness some correction, going forward. On a technical analysis front, the stock has a support level of ~$22.342 and a resistance level of ~$37.904. Hence, considering the returns on stocks, higher valuation, RSI levels, and current trading levels, we advise investors to book profit and give a “Sell” rating on the stock at the current market price of $36.530 per share, up by 14.982% on 14^th January 2021, owing to the signing of a deal with Intermountain Healthcare.

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

Envirosuite Limited

EVS Details

Decent Growth in Recurring Revenue: Envirosuite Limited (ASX: EVS) is one of the global leaders in environmental intelligence having operations in over 15 countries. The market capitalisation of the company stood at $174.44 million as on 14^th January 2021. During the quarter ended 31^st December 2020 (Q2 FY21), the company added $1.1 million in new ARR (Annual Recurring Revenue), which was supported by 19 new clients in all its major sectors of Mining, Industrial, Airports and Water. Despite some new sales being pushed into Q3, the company recorded a new non-recurring revenue of $3.0 million, which indicates a rise of 250% over the previous quarter. In addition, the company renewed 37 contracts with the value of $2.7 million at a churn rate of less than 0.2%. During FY20, the company reported revenue amounting to $24 million, out of which 75% is the recurring revenue.

Key Financials (Source: Company Reports)

Outlook: Looking forward, the company expects numerous opportunities in China’s green airports push and low carbon and emissions transition.

Stock Recommendation: As on 30^th June 2020, the cash and cash equivalents of the company stood at $24.38 million as compared to $7.56 million as on 30^th June 2019. The stock of EVS has surged ~50% in the last nine months. On a TTM basis, EVS has an EV/Sales multiple of 3.8x, which is higher than the industry median (Industrials) of 2.3x. In addition, we have considered 14-day RSI, and it was observed that the stock is currently in the overbought zone and may witness some correction, going forward. On a technical analysis front, the stock has a support level of ~$0.156 and a resistance level of ~$0.242. Hence, considering the returns on stocks, higher valuation, and RSI levels, we advise investors to book profit and give a “Sell” rating on the stock at the current market price of $0.180 per share, up by 5.882% on 14^th January 2021.

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

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