Pro Medicus Limited
PME Details
Higher Investments & Geographical Diversification Aid PME: Pro Medicus Limited (ASX: PME) offers a full range of radiology IT software and services to hospitals, imaging centres and health care groups worldwide.
- In 1HFY22, the company made an ongoing R&D investment in Visage 7 Viewer, Visage Open Archive and Visage Workflow products, which added to PME’s performance.
- The company witnessed noteworthy uplift in the North American business, which was a key contributor to 1HFY22 results.
- The company recorded robust 1HFY22 results, owing to growth in North America, Australia, and Europe. In addition, the jump in transaction revenue from PME’s US contracts, and contract renewals, positively impacted the overall top and bottom-line growth.
- In 1HFY22, PME declared a fully franked interim dividend of 10 cents per share, up 42.9% on pcp. As at 31 December 2021, cash reserves stood at $76.17 million, up $14.91 million from 31 December 2020.
Liquidity Highlight; Analysis by Kalkine Group
Risk Analysis: The company is exposed to risks such as complex regulatory landscape, foreign currency, risk of losing new and existing market share, cyber security risks and increase in expenditure.
Outlook: The company expects FY22, to be a period of increased revenues from previously won transaction-based contracts. PME is focusing on growing its Visage 7.0 product to emphasis key market segments such as large Health Systems and Hospitals. It aims to retain its market leadership by investing higher in innovative products.
Valuation Methodology: P/E 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 ~31.51% in the past six months. Currently, the stock is trading close to its 52-week low level of $38.850. The stock of the company has been valued using the P/E multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at some premium compared to its peers, consideration the benefits from major contracts, portfolio expansion, expected contribution from the North American region, etc. For the purpose of valuation, peers such as Nanosonics Ltd (ASX: NAN), Fisher & Paykel Healthcare Corporation Ltd (ASX: FPH), and Cochlear Ltd (ASX: COH) have been considered. Considering the robust 1HFY22 results, diversified portfolio, geographical expansion, encouraging long-term outlook, current trading levels, and indicative upside in the valuation, we recommend a “Buy” rating on the stock at the closing market price of $42.13, down by ~0.331%, as on 31 May 2022.
Markets are trading in a highly volatile zone currently due to certain macroeconomic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.
PME Daily Technical Chart, Data Source: REFINITIV
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.
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.
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