ASX Next Pepped-up Tech Stock For FY23

Pro Medicus Limited (ASX:PME)


Pro Medicus Limited (ASX: PME) is an Australia-based healthcare informatics company. The Company is a developer and supplier of healthcare imaging software and services to hospitals, diagnostic imaging groups and other related health entities in Australia, North America and Europe. The Company's products include Visage RIS, Visage RIS/PACS, Visage 7, Visage Ease Pro and Visage Ease. Its Visage RIS is a Radiology Information Systems (RIS) medical software for practicing of management, training, installation and professional services. Visage RIS capabilities include patient registration; billing; scheduling; typing; HL7 integration; financial reporting; digital dictation and voice recognition integration.

Financials:

PRO MEDICUS LIMITED (ASX: PME)

(Source: Refinitiv, Thomson Reuters)

From the Company Reports:

PME signs two contract renewals with a combined minimum value of A$47M

Leading health imaging company Pro Medicus Limited (ASX: PME) on 14 June 2022 announced that its wholly owned U.S. subsidiary, Visage Imaging, Inc., had signed two key contract renewals with a combined value of A$47M.

Highlights

  • Signs two contract renewals with a combined minimum value of A$47M.
  • Sutter Health renews for seven years – Wellspan Health for five.
  • Contract renewals transaction-based with potential upside.
  • Renewals negotiated at an increased fee per transaction.

Sutter Health, a large IDN based in Sacramento, California had signed for a further seven years, and Wellspan Health based in Pennsylvania for a further five. Both deals were transaction based with committed minimums and have been negotiated at a higher per transaction cost than their original contracts.

PME signs two contract renewals with a combined minimum value of A$47M.

Pro Medicus Limited (ASX: PME) on 2 June 2022 announced that its wholly owned U.S. subsidiary, Visage Imaging, Inc., had signed a A$28M, 7-year contract with Allina Health.

Highlights

  • PME signs a 7-year, A$28M deal with Allina Health.
  • Visage to replace legacy PACS throughout the Allina Health network.
  • The contract includes Visage 7 Workflow and Visage 7 Viewer.
  • Visage 7 platform to be installed in the cloud.
  • Continues PME’s rapid expansion into North American integrated delivery networks.
  • A transaction-based model with potential upside.

Allina Health, a not-for-profit health care system based in Minneapolis, Minnesota, has 28,000 employees and 6,000 associated and employed physicians and operates 11 hospitals and more than 90 clinics throughout Minnesota and Wisconsin.

Based on a transactional licensing model, the contract will see the company’s Visage 7 Enterprise Imaging Platform and Visage 7 Workflow module implemented throughout Allina Health, providing a unified diagnostic imaging platform across the network.

This is Company’s fifth major contract in the North American integrated delivery network (IDN) space in 18 months, underpinning the strong momentum it continues to build in this important segment of the market.

IDNs are growing because of the trend toward value-based medicine coupled with industry consolidation. The Company’s Visage 7 platform is ideally suited to meet their needs with its unparalleled speed, scalability, and proven cloud capability.

Industry Analysis:

Imaging is becoming a much larger part of a patient’s healthcare record, estimated to be over 90% by volume and growing not to mention the increasing roles that Cloud and AI are having in healthcare imaging. 

The market size, measured by revenue, of the Diagnostic Imaging Services industry in Australia, is $4.7bn in 2022. Revenue for the Diagnostic Imaging Services industry is projected to continue growing over the next five years. Australia’s ageing population and a greater focus on the early detection and prevention of medical conditions are anticipated to support the industry’s performance over the period. The ongoing shift from basic diagnostic radiology towards more advanced procedures without radiation exposure, such as MRI, is anticipated to drive industry revenue growth.

Value Proposition:

  • ROE vs Sector vs Index: PME with ROE of 43.49% sits at a good proposition compared to Sector ROE at -53.51% and Index ROE of 13.3%.

Forecasted Growth:

PME earnings are forecasted to grow by 24% in next twelve months compared to Industry earnings growth of 5.5% in next twelve months.

PME revenues are expected to grow by 20.8% in next twelve months.

Earnings are projected to grow at a CAGR of 19.3% between FY22-FY26.

*Forecasted Twelve Months or NTM (Next Twelve Months): of any financial metrics measure such as EV/Sales, EV/ EBITDA, or P/B, PCF, P/E is the calculation forecasted for the immediate next twelve months from the current date based on projections applied to the revenues, EBITDA etc.

*TTM or Trailing Twelve Months refers to a company’s past 12 consecutive months of performance data from the current date used in financial reporting.

Peer Analysis:

(Source: Refinitiv, Thomson Reuters)

PME with a D/E of 3.2% and Return on Average common equity of 45.8% sits relatively well among its peers.

Financial Metrics:

PME reported year on year growth in margins with net margin growth of 4.84% (year on year) to 45.32%. With ROE growth of 1.33% to 43.49% (June 2021) and D/E at 3.21% (June 2021), PME maintains sound financial metrics.

Recent Sector News

  • A novel artificial intelligence method can now be used to generate high-quality “PET/CT” images and subsequently decrease radiation exposure to the patient. Developed by the National Cancer Institute, the method bypasses the need for CT-based attenuation correction, potentially allowing for more frequent PET imaging to monitor disease and treatment progression without radiation exposure from CT acquisition.
  • A research team led by Prof. Li Hai and Wang Hongzhi from the Hefei Institutes of Physical Science of the Chinese Academy of Sciences (CAS) has recently proposed an interpretable radiomic model for predicting radiotherapy treatment response in patients with brain metastases. Radiometrics refers to the extraction of high-throughput radiological features from medical images to assist clinical decision making. These radiological features can reflect the biological information of tumors that cannot be directly obtained by traditional image interpretation.

Market Risk Analysis:

  • Pipeline conversion is critical.
  • Inflation affects technology companies.
  • Complications associated with medical imaging though rare, but can be serious, potentially leading to injury or causing a secondary illness.
  • European health networks buying their informatics is still behind. Don’t see much Cloud in Europe.

Outlook:

Pro Medicus observes that an increasing number of Visage clients were opting for a fully cloud-based solution, a trend that has taken a major foothold in the North American healthcare IT market. Its proven cloud-engineered technology provides it with a very significant strategic advantage with the last six of its major contracts being cloud-based a trend expected to continue.

Technical Analysis:

(Chart Source: Trading View) Monthly and Weekly candlestick price pattern

The Fibonacci is drawn from a swing low at $4.63 in August 2017 to a swing high at $70 in August 2021. The selling pressure from highs has continued and the stock has retraced by 50% from its high.

The 50 day EMA (Exponential Moving Average) intersection with the 50% Fibonacci provides it with strong support at $37.12. The formation of the “Lower Lows” with the “Three Black Soldiers” pattern on a monthly chart, signals reversal and recovery from lows in the near to medium term.

On a weekly price chart, the 200 day EMA provides a strong support zone and the stock has maintained this level since March 2020.

On a daily price chart, the price pattern showing recovery from lows with RSI(Relative Strength Index) turning from oversold point signals recovery and bullish momentum.

With all the three charts confirming the upside momentum and reversal with recovery, the bullish potential in the stock is well expected in the medium to long term.

Disclaimer

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