Pro Medicus - FY21 Record revenue and profit

For FY21, Pro Medicus (PME) reported profit growth of 33.7% to a record $30.9m on revenues of $67.9m which was up 19.5%. The company also generated strong free cash flows, with cash and other financial assets sitting at $61.8m, which is over 40% higher than at the end of the previous year. The company remains debt free, and despite the strong growth to date, their pipeline remains very healthy for their medical imaging IT solution. The company is also well placed to become the leader in the medical AI space through their FDA approved Breast Density AI Algorithm and the research collaboration with NYU Langone Health and Mayo Clinic. Although this is a longer dated opportunity, we think it has the potential to create significant shareholder value, while also delivering improved clinical outcomes and lowering healthcare costs.

The company boasts a market capitalisation of $6.7 billion, which translates to a price to earnings ratio of over 200x. To put this into context, CSL trades on a multiple of 40x. Despite the elevated near term valuation, PME is one of the largest positions in the ELMRI ANZ Conviction Fund as we think it is one of the highest quality, founder-led growth companies listed on the ASX.

The company’s Visage platform is market leading and used by hospitals (leading academic, private and public) and radiology clinics globally. Given the nature of the industry and priority of patient care and safety, the industry tends to be thoughtful and cautious when implementing new technology or services. Therefore, the uptake of the Visage platform (which is priced at a premium) by many of the leading hospitals around the world is a validation of the product and their competitive advantage in this space. Furthermore, since the technology is delivered as a software as a service (SaaS) to customers, the company benefits by having recurring revenues, and customers also benefit from ease-of-use, flexibility (particularly important during COVID), minimal upfront costs and clinical efficiencies. Unlike many other SaaS businesses, Pro Medicus also benefits from having its revenues tied to transactions with minimum commitments. This means that Pro Medicus generates greater revenues as radiologists use the technology more. Unlike other industries where volumes can be cyclical and volatile, radiology volumes grow in most years.

According to UBS, Pro Medicus’ total addressable market is the ~US$560m Enterprise Imaging segment and is forecast to grow at 17% CAGR from CY18-22E. The company reported revenues of $67.9m in fiscal year 2021, suggesting that it still has significant market share and growth potential. Furthermore, unlike many other growth companies, PME has the track-record of growing profitably.

We continue to believe that the company has numerous long dated opportunities (onboard new clients, offer new solutions to existing customers, offer different solutions to different departments, monetise AI) which the market is underestimating. The company also continues to execute well as seen in the most recent results, and so we remain invested in the company.

A prior research report on the company can be found here.

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Past performance is for illustrative purposes only and is not indicative of future performance.