Alcidion has got their fingers in so many different pies that they do not even need to get everything right or to dominate the market. Just securing a portion of the overall potential revenue market should provide a meaningful re-rate.
My investment thesis on Alcidion really comes down to:
Below are just some random thoughts from my perspective, an ordinary retail investor like most here:
1.) In my view, Alcidion only needs to execute and successfully capitalise on a few opportunities within the total 'global' revenue opportunity that exists (ranging from hundreds of millions to blue sky thinking of billions). With the strong tailwinds, I do not think it is unreasonable or unrealistic to achieve revenue sales of $50 million or so within the next 5 years or so. With high operating leverage and reasonable gross margins, net profits of $30 million or so does not seem very far-stretched.
2.) At this very time, we need news before the share price can move up again. Until that happens, the share price would probably fluctuate within a range, being tightly controlled going by recent trading patterns too. I have no doubt that news will come soon, what I am hoping to see soon is a high-valued contract win. If this happens, I feel the market will re-rate Alcidion accordingly as I believe the market is still somewhat sceptical about the scalability, revenue and profitability potential yet. However, I am also not discounting an acquisition announcement.
3.) A common factor in the recent re-rates by the market to technology companies such PCK, TNY, NHL and etc is the data that these companies hold. One of the key challenges facing many technological companies in the artificial intelligence and algorithm is that they need data - lots and lots of data. You either have to acquire it and/or collect it over a long period of time.
What the market perhaps is not appreciating is that Alcidion potentially holds a much bigger data bank than many companies. In fact, a huge data repository . Latest corporate presentation states that Alcidion currently has approximately 79 million observations. The repository is continually growing as more data points are being internally fed in via Patientrack and etc. The rate at which this internal feeding is taking place will also grow as more contracts are won.
More data points will continually refine the algorithm and ultimately lead to better and more accurate artificial intelligence models. I would not be very surprised if Alcidion comes out with a Miya 2.0 to headline its aggressive push into our key markets.
4.) I also think there is a massive opportunity for Alcidion to incorporate their algorithms into wearables. There are now measurable links between biomarkers such as sleeping cycles, heart and breathing rates, blood pressure and how those data can be used for automated health event prediction, prevention and intervention.
Having re-read the announcement and listened to the conference call. I really feel that Alcidion is ahead of my expectations, following the acquisition of MKM Health and etc.
The thesis here for Alcidion is very simple:
Alcidion is emerging as a disruptive leader in an emerging platform and data analytics market with strong structural tailwinds, disrupting a $1.63 billion market (across Aust, NZ and UK), where network effects and relationships are at play. This leaves Alcidion well-placed to secure market share as hospitals look to technology to improve delivery of healthcare and transition to digital maturity - creating a long runway for growth.
Positive momentum on the revenue front
Two things stood out for me on the revenue front
1. Revenue growth
Total revenue already set to be recognised for the 1H FY20 totaled $15.4 million, already totaling 91% of the FY18 revenue of $16.9 million,with the stronger half yet to come.
This was a pleasing result and reflects a company that is continuing to grow. As previously mentioned, the revenue figures also incorporate contracts win that were not announced to the ASX as they did not meet the materiality threshold. An example of this is the 5-year $160,000 contract win with the Queen Victoria Hospital for Alcidion's Patientrack solution via a competitive tender. This is therefore something for investors to bear in mind in between the time lag between ASX announced contract wins/extensions - many things are still happening in the background.
2. Revenue profile
Alcidion is continuing to transition to a more recurring revenue profile. In my view, recurring revenue will continue to accelerate.
The transition to a more recurring revenue profile is important because it promotes:
Over time, there is a huge recurring revenue opportunity for Alcidion from its existing three key markets given all of them have yet to commence their transition to digital maturity. Given time, there is the potential for Alcidion to hit the $15-$20 million recurring revenue profile from the first phase of the digital transition from the existing three key markets.
Successful execution to capitalise on the opportunity won't happen overnightBUT the massive market opportunity is right in front of Alcidion to position itself as a disruptive leader in healthcare technology space.
What could go wrong?
Shit sometimes happen but there are definitely some risks associated with the potential reward - aka Alcidion's risk-reward proposition.
The risks that come to my mind include:
All in all, I was assured by the commentary and feeling confident of 2020. I think the number of near and medium term catalysts is still not thought through and well-appreciated by many investors.
Key points from the conference call:
No major new insights this quarter in temrs of the broader, long-term narrative.
Business remains well placed, it seems, to continue strong growth, especially with an apparent pick up in the uk market. However, increased investment in development, sales etc have seen cash outflows increase (and will continue to next quarter).
The business has already total confirmed revenue of $15.4m for the full year (compared to $16.9m total last year). Alcidion has $17m in cash and term deposits.
Alcidion's 4C quarterly cash flow statement, ending Dec31 2019, highlights:
During this bear market it's good to take notice of insider buying. With some companies getting sliced by 40-50% since Jan, it's good to understand whether the company was overvalued to begin with, or whether it's just been an effect of the broader sell off. Alcidion has been one of them companies and I feel the selling pressure has been a mixture of both value and market sentiment. So it's a confidence boost to the shareholders to see insider buying by Group MD Kate Q (1m shares at 0.137c) and Chair Rebecca W (250k shares at around 0.12c). Both above or at current market value.
16 March 2020
We recognise the uncertainty that exists relating to the potential impact of the COVID-19 virus on global healthcare in the coming months and no business will be immune from its impacts. However, what we do know is that there will be increasing demand on the healthcare services as the number of cases accumulate globally and ultimately technology has a role to play in supporting the response to this increasing demand.
The current crisis represents an important context for us to demonstrate the merits of our unique platform that can give hospitals a site-wide view of their patient flow, automate workflows, alert clinicians to patients who are at risk or in decline, and assist in better management of resources to reduce the burden on clinicians and optimise patient care.
Our unique technology platform has been proven to support healthcare organisations to manage resources by improving efficiency and patient flow, enabling hospital beds to be freed up. We have recently built a feature in Miya Precision to provide flags to identify patients with and at risk of COVID-19 which we are now in a position to deploy to those customers requesting it. We have also developed COVID-19 screening assessments in Patientrack which we will shortly make available to customers. We will continue to monitor the situation in close consultation with our customers and provide what assistance we can as they manage this outbreak.
Our business itself is well positioned to accommodate whatever measures are prudent for us to take to safeguard the health of our staff, our customers, our customers’ patients and the wider community. Many of our services are delivered remotely and all our staff can work from home if self-isolation measures are required, either for individuals or for an entire office. Following consultation with our customers, we will be implementing contingency measures for each of our current projects to ensure we can continue to support these projects and our customers.
From an investment perspective, the fundamentals of the healthcare technology market have not changed – recent global events serve to heighten the value of investment in digital technology to improve clinical workflow and the delivery of care. We continue to strengthen our sales pipeline in Australia, New Zealand and the UK.
Alcidion is well positioned to capitalise on the rapidly increasing investment in digital healthcare. We have a clear strategy to accelerate growth, which we are successfully implementing, and we have a strong balance sheet to sustain the investment through current volatile capital markets. Weakness in the share price is of course disappointing for all shareholders and earlier this week I took the opportunity to add to my shareholding with the on market purchase of 1,000,000 shares. Our Chair Rebecca Wilson has also purchased further shares.
Curran & Co has slightly upgraded its 12-month price target for Alcidion to $0.30.
Main contributors to the higher price target include:
I wanted to point out that the "$15.4M revenue already set to be recognised in FY2020" is very similar to this quote from their half year report on 25th febuary 2019 "Strong outlook for the Group with $14.8 million of contracted revenues to be realised in FY2019", one month off this time last year they had all there revenue for the fininacial year bar $2.1M. if that was to happen this year agian we would see that company have around a 2.2M increase in revnue at 17.6M an increase revenue of 4.1%. They have gotten an increase from 27.4 to 37.2 in total sold revenue a 36% increase from last year this time. This is surface level research however and i do not have he pdfs of the last years quarters, though i did have it writtern down that in there Q3 last year they had a 6.2M and Q4 with 6.1M in receipts. So they do have a trend of ramping up recognised revenue in there quarters towards the end of the year. However there recurring revnue is up 27% which for ALC is what i watch the most and they have solidy increased contracts.If they do only get to around 17 to 18 million in revenue they are fairly valued.
The 15.4M in yearly perspective is not that impressive, yet we will have to see if they can manage to keep increasing that past the 2.1M of last year.
From the conference call I'm loving the idea that the platform can be used outside of the hospital environment and that management are considering this.
This means patients can be monitored at home. A feature that is extremely valid in the current environment but also forward looking (as stated on the call) for using the application for monitoring our aging population both in nursing care and in their own homes.
As one caller stated on the conference call, this effectively places a nurse, if not a doctor, at your home.
Below are some key observations from the Curran & Co research note.
As always, everyone should their your own research and be mindful of the fact that the entity was joint bookrunner in the recent capital raise, hence take some of their forecasts, valuation, methodology etc with a grain of salt.
12-month price target $0.29, upside of 38% from current share price of $0.21.
Valuation is derived using a hybrid of the Dividend Discount Model and Gordon Growth Model to derive the present value of dividends beyond FY25.
Uplift in revenue expectations beyond FY20 due to major capacity for growth in existing markets
Curran & Co is forecasting aggressive revenue growth, with 25% increase in FY20
Earnings growth will start to flow through in FY22
EBITDA forecast to reach $37 million by FY24
Profit growth in the near term will be constrained by extra costs associated with Alcidion’s expansion strategy
Massive opportunity for penetration into the EU and North American markets
Both markets collectively have approximately 1.1 million hospital beds
Alcidion may seek to enter both markets either by distributors or acquisitions
Validation of analytics capability from the recent Healthscope partnership
First major private hospital operator to utilise Alcidion’s services, paving the way for further penetration into the Australian private hospital segment
Considering all things (Brexit and Covid19), it was a decent result.
My takeaways from the conference call on the 4C are:
Areas of interest
Sales and marketing
Q3 FY2020 Business UpdateSolid result with a strong pipeline despite COVID-19
- Townsville Hospital and Health Service contract to implement Smartpage;
- An extension and renewal agreement with NHS Fife for a further five years;
- The implementation of a data warehouse across all Calvary Health Care sites;
- Systems integration contract for national Digital Pregnancy Health Record pilot; andoMurrumbidgee LHD to expand and extend use of Miya Precision and Miya MEMRe.
27 DECEMBER 2019
Alcidion signs contract for medications management solution
Melbourne, Victoria – Alcidion Group Ltd (ASX:ALC) announces that an agreement has been reached with Dartford and Gravesham NHS Trust, UK, to implement the OPENeP Electronic Prescribing and Medications Administration (ePMA) system produced by Better. Total value of the contract is £1.02 million (~A$1.9 million) to be recognised over six years.
The agreement follows Alcidion’s award as preferred provider by the Trust, a status previously announced in July 2019 and subject to final approval by the Trust and successful negotiation of terms.
Alcidion was appointed as a reseller and implementer of the OPENeP solution in April 2019 for the UK, Australia and New Zealand health sectors. This project will represent Alcidion’s first implementation of OPENeP.
The agreement extends Alcidion’s existing relationship with Dartford and Gravesham, where a contract was signed earlier in 2019 for the first implementation of Alcidion’s full product suite in the UK. The Patientrack solution was implemented earlier this year, and planning is currently underway to implement the Miya Precision and Smartpage solutions.
19 December 2019
Alcidion signs vital signs monitoring and patient assessments contract with Taunton and Somerset NHS Foundation Trust
Here's a valuation that follows similarly to Painchek's;
There's 4 assumptions;
- Revenue Growth
- Cost of Capital
In my story, I believe that revenues can grow at 25% compounded annual growth for the next 5 years followed by growing slowly at 15% from then onwards. This ultimately ends up being $120M in 10 years time. This is a big assumption as I am assuming that they can achieve revenues that is around 20% of FY19 Ramsay Healthcare in 10 years time. This is the number that I am still unsure about, as their average contract size is around $2M. Either they can increase exisiting contract size or get new larger contracts. China or USA is still untapped and I believe that's where they have to go in the near future to justify $120M. I assume in 10 years, they will be at the mature stage and can grow at a steady state.
I expect Operating margins to be high, hence the profitability aspect of the story is that margins to remain healthy at 40%. Currently, it's at 35%. My justification for 40% is due to the nature of the contracts; they are long, revenues are diversified and the size per contract can change prior renewal.
I expect Alcidion to reinvest at a normal rate, hence the sales to cap ratio of 3. This implies that for every $1 investment, the company to get $3 of revenue. I think it is a reasonable assumption considering their acquisition of Patient-track and MKM had 5x their annual revenue. Soo I trust their track record for sensible investments.
Cost of capital is a tricky one and ultimately define the valuation for me. I came to the conclusion that a cost of capital at 7.85% is a reasonable assumption. It is a complicated formula but in simple terms I took the weighted average of Market value of (Equity and Debt) with cost of equity and cost of debt. Market value of equity is a fancy word for Market cap. Market Value of debt is (Book value of debt (you can find in balance sheet) divide by (1+ pre tax cost of debt) ^ (average maturity of debt)). The 7.85% is the risk I place on future cashflows. I could have attach a premium on an external event like Coronavirus, if I believe the virus would impact cashflows. But, I think Alcidion has the unique advantage of customers relying on their products/services at a time like this. My big assumption with this, is that the cost of capital to go down to 6%. That means that they would not borrow more and focus their time on executing larger contracts.
Using the calcs, I came up with $0.38. This is using Damodaran's spreadsheet.
Luckily anyone can play around using his spreadsheets. Here's how he goes about valuing tech firms like Uber. Very insightful way of valuing young companies when P/E and DDM goes to the trash can.
Melbourne, Australia - Alcidion Group Limited (ASX: ALC) has signed an extension and renewal agreement with NHS Fife for an additional five-year term, extending the Board’s use of the electronic bedside monitoring system across the whole estate (minimum 10 hospitals). The total value of the new contract is $1.47M over five years, to 2025.
NHS Fife is a regional hub in Scotland, serving a population of 370,000 residents. Under the expanded renewal agreement, NHS Fife will now deploy Patientrack across the whole estate, a minimum of ten hospitals including two main acute hospitals and a network of community and day hospitals, amounting to approximately 1342 beds.
Alcidion has announced a further $1m in sold revenue since the end of the 2nd quarter, taking the total sold revenue so far in FY2020 to $15.4m. This compares to the $16.9m that was recorded in all of FY19.
The presentation also reiterates the size of the market opportunity, the increased investment in growth and the recently strengthened balance sheet.
Alcidion signs vital signs monitoring and patient assessments contract with Taunton and Somerset NHS Foundation Trust
• Alcidion selected as solution partner for Taunton and Somerset NHS Foundation Trust in the UK, a contract valued at $500k over 3 years
• Taunton and Somerset NHS Foundation Trust will implement Alcidion’s Patientrack software solution to improve patient care and safety
• The Trust is part of the NHS Global Digital Exemplars program – encouraging use of world-class digital technologies and information and the creation of blueprints for other trusts
Melbourne, Victoria – Alcidion Group Limited (ASX: ALC) has been selected by Taunton and Somerset NHS Foundation Trust to deliver Patientrack, Alcidion’s electronic observations and patient assessment solution, signing a contract worth $500K over three years.
Patientrack will be used to digitise the capture of patient vital signs and observations at the bedside. This will ensure that patients’ early warning scores are accurately calculated, and that nurses and doctors are automatically alerted to patients at risk of deterioration, so that they can intervene earlier. The deployment, which will see frontline staff benefit over the coming months, is expected to deliver significant gains for patient safety and is a component of the trust’s wider digital priorities.
Taunton and Somerset NHS Foundation Trust is one of 17 acute (hospital) trusts in the NHS England’s Global Digital Exemplar (GDE) program, a knowledge-sharing program designed to improve patient care through the adoption of world-class technologies, and to create blueprints for other trusts to adopt.
The deployment of Patientrack is expected to deliver significant benefits for ward staff and improvements in patient safety. It is a key component of the trust’s wider digital agenda.
Stuart Hill, deputy CIO at Taunton and Somerset NHS Foundation Trust, said “Patientrack will form part of the trust’s ecosystem of clinical solutions, which clinicians use to support patient-centred care. Electronic observations and assessments are vital to the trust’s digital agenda, which fits our GDE program blueprint to advance the use of digitally enabled care.
“We chose Alcidion’s Patientrack solution because of its proven impact across other NHS organisations to enhance patient safety through digital technology. It will make essential information on patients at risk of deterioration much more mobile for our professionals, who will benefit quickly from this solution which is planned to be deployed over the coming months.”
After an initial go-live of electronic observations, the trust will use Patientrack to progressively deploy electronic patient assessments including sepsis, neurological, neurovascular, weight and Bristol Stool assessments. Patientrack will interoperate with other hospital systems to deliver vital information where needed. Deployment of the system will help to deliver on ambitions of the trust’s best of breed digital strategy, which has drawn heavily on clinicians to identify the right technologies to support care.
Kate Quirke, CEO for Alcidion, said: “The NHS remains our biggest customer base in the world, drawing on proven technology to make a difference for the lives of patients. This is an important opportunity for us to expand our work within a globally respected institution, and to put helpful technology and information into the hands of professionals, where it can really make a difference. We are looking forward to working with this GDE that is also using one of our partners ePrescribing solutions, OPENeP from Better.
Donald Kennedy, UK general manager at Alcidion, said: “This fast implementation shows what can be done when NHS hospitals and responsive technology providers work together. This best of breed approach to digital transformation is about delivering tangible benefits in patient safety to frontline NHS staff quickly in a trust that is looked to across England and further afield as an example of digital excellence.”
More widely across the NHS, many hospitals have recorded substantial gains in patient safety by using the Patientrack technology. Measured impact has included significant reductions in cardiac arrests, mortality, length of stay, and admissions to intensive care. Hospitals have also innovated with the Patientrack technology to tackle deadly conditions, including acute kidney injury and sepsis.
If anyone missed it earlier, the recording is now available on their website:
24 February 2020
Alcidion Group-H1 FY2020 Results Solid start to FY2020 with significant contracts signed and investments for growth.
11 February 2020
Melbourne, Victoria – Alcidion Group Limited (ASX: ALC) today advises it has released the attached investor presentation and business update, which will be presented to investors this week by Managing Director Kate Quirke.
Highlights from the presentation include:
revenue for 6 months nearly equal to prior 12 months...
Two key industry trends that would benefit Alcidion
1. Financial pressure are increasing
Both public and private health systems are facing revenue pressures, margins squeeze and lower budgets. It is inevitable that providers would seek to identify productivity gains and greater efficiencies - that is, provide more services using less resources.
The increased labour costs of doctors is also a real problems for hospitals. My experience with public hospitals is that they are employing more young doctors as some of the more experienced and older doctors move into the more lucrative private sector. However, public hospitals also have the operational need to reemploy those doctors/other doctors from the private sector back to the public system as consultants (e.g. 1 day a week) on private sector wages to guide the newer doctors. All these lead to increased cost pressures in the public system.
Looking at things from another perspective, the Miya platform can also help with succession planning as hospitals would be less dependent on certain key individuals.
2. Increased emphasis to deliver better 'targeted' healthcare services
A 2018 study found that the average GP consultation time was just under 15 minutes in Australia, more than 20 minutes in the US, and around 10 minutes in the UK.
This quick around obviously would have an impact on patient outcomes (e.g. whether the right diagnosis is carried out or unintended adverse outcomes), workload pressure on doctors, nurses and the hospital system.
Obviously, Aldicion's product suite would not solve this problem on its own. But what it can do is to alleviate this pressure and provide the necessary information for doctors and nurses to isolate the problem and provide a more 'targeted' medical response.
In my view, this is potentially a game-changer.
Imagine the doctor or nurse who only has a limited period of time with each patent not having to read through all the previous medical information to join the dots by having to stop, review hardcopy records and establish whether the current treatment would result in an adverse reaction due to a pre-existing condition. This is also assuming that the doctor has the capacity and expertise to join all the dots.
Imagine now having access to a device that has really joined all the dots at the swap of a finger.
Haven’t done a deep analysis of ALC.
I find it hard to understand how ALC will compete in this space. There are some big companies that offer products similar to ALC. See ALCs investor presentations for a list of competitors.
Yes, ALC is wining some contracts, but for how long before the big players cover ALCs differentiation points, eliminating ALCs competitive advantage.
Would appreciate for some to offer a counter point.