Updating my valuation for $VHT arriving at A$1.30/share expected value.

While this is not significantly different from my valuation a few months ago, this one is based on a full 10-year DCF modelling a range of scenarios detailed below, with ratios now derived from two full years of organic growth.

Revenue

While Teri is aiming for Revenue growth of >20%p.a., I consider at range of growth scenarios commencing in FY24 (25%, 22.5%, & 20%) and declining over the explicit period at rates ranging from -1.5% p.a. for the higher starting point down to -0.75% p.a. for the lower.

Expense Ratio

I assume operating leverage from expenses (incl. D&A) rising annually between 8% up to 15% (with the upper end in high revenue growth scenarios). I sense check the 2033 expense/revenue numbers and benchmark against other larger SaaS companies.

Capex

Capex/Revenue is currently low (8.3% and 7.3% last two years), which I think is because capability was acquired via business acquisitions in FY20 and FY21 and because most R&D is being expensed (FY23 Capex / R&D Expense = 15%).

I believe that to deliver the Risk Pathways beyond current diseases AND to leverage the image dataset (e.g. via AI), R&D and Capex will need to rise, so scenarios consider Capex/Revenue ranging from 8% up to 15%, with higher spend tied to higher revenue growth scenarios.

Common Assumptions

• WACC = 11%
• Terminal Growth Rate = 3%
• Tax = 30%
• Lease Payments rise in proportion with Operating Expenses
• AUD:NZD = 0.93

Results

Model outputs range from $0.67/share up to $2.16/share.

With some simple probabilistic modelling on the scenarios chosen I get a p(10)-p(90) spread of about $0.67-$1.75; p(50)=$1.30

The reason for the wide spread is that we don't have enough organic growth history to understand how well $VHT scales. It will be worth doing an update once FY24 gives another year of organic growth.

Limitations

$VHT will potentially grow faster in the early years at a lower rate of expense and capex growth than modelled (justification: 1) FY22 and FY23 revenue growth were 32% and 34%, respectively and 2) deadline for US FDA mandate on density).

As a result the modelling is probably pessimistic on NPAT and FCF generation in the first 2-3 years and are indeed below "consensus" of 2 analysts with target prices of $1.20).

Illustration of 1 Scenario (chosing one closest to Expected Value)

(Scenario: FY24 rev. growth=22.5%; -1.0% p.a.; FY33 rev. growth= 13.5%; expense growth =7.5% p.a.; capex/revenue = 10%)

Comment on Market Size (Quick triangulation)

$VHT assess number of US Elephants as 230+. Elephant = ARR>US$0.25m

Assuming 50% elephants are $0.25-$0.50m ($0.375m) and 50% are $0.50-0.75 ($0.625m), US market size of elephants is US$115m. Assuming elephants make up 50% of the market, then US market is US$230 and assuming $US market is 40% of global market, then global market is US$0.6bn. Global radiology software market estimates range from US3-4bn up to as high as $7bn. This would make mammogram image analysis ranging from 8-20% of the total market. Note: mammography has a c, 10% share of the global radiology market, so numbers probably high, but OK for order of magnitude.

At a market CAGR of 6% for imaging software, global mammography software (imaging and analysis) market in 2033 is US1.1bn.

$VHT 20233 revenue in above scenario is NZ$185m = US$110, which is 10% share of global market for software relating to mammography. This is not unreasonable given the assumption that growth is also building out analystics for other diseases.

Conclusion: modelled revenue growth to 2033 should not be market-constrained and neither does it assume market dominance.

Further limitation: analysis has not considered market evolution where Autonomous Reading is widely implemented.

Disclaimer: For illustrative purposes only; not to be taken as advice.