Kate provided an update, (summariesed below per the announcement) and briefly discussed the cash position which is very strong and in line with seasonal cash flows will be even stronger next quarter. The FCF over the past 4 quarters is $5.5m (total) and this should lift next quarter in line with sales growth, so we are seeing very strong cash generation from the business.

At a market cap of almost A$150m this is starting to look good on a cash flow basis. PE remains very high due to NPAT being suppressed by the amortisation of intangible assets so is not a good metric.

I am sticking to my $0.168 valuation with a wide range of $0.08 to $0.27, but if the land and expand strategy continues to be successful then the upper end of the range is well within sight. However due to the competitive market and being boxed into UK and Australia, the upside opportunity is limited such that I don’t see it as a 5-10 bag opportunity at this point so will sit on my current small position.

Disc: I own RL

Summary of announcement:

Alcidion delivered positive operating cashflow of $1.7M in Q3 FY26 on cash receipts of $14.5M. New sales totalled $11.7M, with 90% recurring revenue.

Key Wins

• UK contract expansions: Hywel Dda and South Tees added Miya Emergency module
• First Queensland deployment: Gold Coast Health signed 5-year remote patient monitoring contract
• Multiple renewals for Patientrack and PCS products
• North Cumbria expanded to include Smartpage non-clinical

Major Contract

University Hospital Sussex EPR contract on track for May 2026 signing. Upfront license will materially boost FY26 revenue. TCV addition of $35m per January announcement will be the second largest TCV addition the company has had.

Financial Position

• FY26 contracted revenue: $43.8M (up 9% on prior year, excluding UHSussex)
• Cash balance: $15.1M, zero debt
• Reaffirmed guidance: Revenue >$50M, EBITDA >$5M, positive operating cashflow matching FY25's $5.8M

Q4 historically delivers highest quarterly receipts. Land-and-expand strategy with existing customers continues validating growth model. 

Documenting the reason I am participating in the rights issue:

·       High price for the business, but justifiable in terms of value to ALC. Silverlink lacks growth as a stand alone business but offers significant growth to ALC as a combined offering.

·       Integration looks to be a good fit in terms of both the additional features but also technical compatibility, fully accretive in terms of product offering.

·       Large benefits available from market penetration provided with existing Silverlink customers but also expanded offering increases the TAM for ALC in UK market.

·       Appreciate the reason for the discount of the offer (urgency and time of year), like that they are putting existing shareholders first which largely mitigates the dilution and value loss from the discount.

This was my conclusion having watched the webinar and read the great straws from @composer as well as reviewed my valuation but have not updated it.

Disc: I own ALC

Valuation detail attached is for the base valuation, an explanation of assumptions below.

Base valuation is what I am going with, Bull & Bear IV provide sensitivity context:

Bull: $0.63 (FY30 sales of 136m, NPAT 59.6m)

Base: $0.30

Bear: $0.15 (FY30 sales of 54m, NPAT 12.2m)

Assumptions:

·         Sales of 25m in FY21 growing at 6-7m a year lead by the UK which overtakes ANZ sales by FY26 with steady penetration into public health in both regions.  The need to implement the product puts a resourcing cap on the rate of growth, hence the almost flat line dollar growth assumption.

·         Margin improvement as recuring product income increases from 56% in FY20 to 88% by FY30 with gross margins increasing from 88% (H1 FY21) to 92.5% in FY30 but also helping reduce Opex% from 99% to 45% over the same period as service costs included in Opex drop as a % of sales.

·         Opex increases significantly in FY21 as already flagged and seen in H1 results, but as management have advised this scale up is mostly one off, so I have allowed for a 15% increase in FY22, 10% in FY23 then 5% going forward.

·         EBITDA% I expect to be negative in FY21, but positive from FY22 onwards, reaching 48% by FY30 due to operating leverage on software revenue.

·         Capex is light and I expect this to continue (R&D is expensed).

·         Share count growth of 10% for FY21 to account for the capital raise and options then 2%.  Further raises for acquisition I expect to be EPS accretive so have ignored.

·         Risk: I have not discounted for risk due to the strong cash position and clear support from capital markets to provide cash and customers to buy the product.

·         Future Opportunities: I have allowed for a 20% uplift in valuation for opportunities around growth of the product portfolio and margins via new acquisitions and product development.

In general, I see my valuation as conservative, even the bull valuation could be well under the opportunity ahead of ALC.  However, with a lack of clarity around product specific revenues, margins and user KPI’s it is very hard to put any substance behind higher levels of revenue growth.

I own ALC but have an order in to half my position at 50c.  I would buy again if it dropped to 20-25c or below and intend to hold the company for a long period base on currently available information