25-Nov-2019: Stephen Scott at Taylor Collison: Compumedics (CMP.ASX) Outperform - Initiating coverage: getting a good night’s sleep
Taylor Collison initiates coverage with Outperform.
Compumedics is a leading global developer and manufacturer of medical devices (and software) for diagnosing sleep disorders, monitoring neurological disorders including, long-term epilepsy monitoring, brain research and ultrasonic monitoring of blood flow through brain transcranial doppler techniques.
Compumedics has four growth drivers: -
- Strongly positioned to benefit from the ongoing growth of the core sleep testing market. The core sleep diagnostic market remains in growth driven by greater awareness and need to treat sleep problems, better treatment and growth in offshore markets;
- Solid growth prospects in the MEG (brain scan) market with a new installation currently deployed and the technology has been submitted for FDA approval;
- Growth in the personal sleep tracking device market via Somfit ™ device that uses medical grade technology to measure personal sleep fitness. A fitbit for sleep. It is also waiting on further regulatory approval; and
- Expansion of the technology into other fields of medicine particularly brain disease and related problems.
Risks include: - FDA approval, project delays, competition from others, product recall, currency (rising AUD) and IP protection.
Valuation and recommendation: Compumedics is well positioned to grow with a sound balance sheet and past investment set to deliver returns. Compumedics core markets are expected to continue to grow, helped by new product releases, sales staff added to key geographies and enhanced distribution relationships. Compumedics has upcoming regulatory approvals (if forthcoming) would be very beneficial. In addition, the Business has pursued operational improvements. These factors should combine to underpin a solid year for FY20. Compumedics has provided guidance of sales between $42-$44m and EBITDA of $6.5-$7.5m for FY20. Our forecasts are at the top of this range. Compumedics is a solid way to invest in the sleep industry with good growth prospects and financial resources to execute carefully considered growth plans. The blended DCF and EV/EBITDA methodology derives a $1.00 per share valuation.
Disclosure: I don't hold any CMP shares currently.
