25-Jan-2021:  Canaccord Genuity: PainChek (PCK): DecQ update - COVID-19 impact defers adoption

Analyst:  Martyn Jacobs | Canaccord Genuity (Australia) Ltd. | [email protected] | +61 3 8688 9164

• Rating: BUY (unchanged)
• Price Target: A$0.35 (down from A$0.49)
• Current price: A$0.07
• 52-Week Range (A$): 0.06 - 0.20
• Avg Daily Vol (M): 3.7
• Market Cap (A$M): 83.4
• Shares Out. (M): 1,126.8
• Dividend/Shr (A$): 0.00
• Dividend Yield (%): 0.0
• Enterprise Value (A$M): 71.0
• Last Cash Balance (A$): 12.4
• Last Quarter Cash Burn (A$M): (1.4)

--- click on the link above for the full CG report on PCK ---

[I do not hold PCK shares.]

2-Nov-2020:  Canaccord Genuity: PainChek Ltd. (PCK): Sep'Q report; COVID-19 impacting enrollments but expanding scope of applications; retain A$0.49 PT

Analyst:  Martyn Jacobs | Canaccord Genuity (Australia) Ltd. | [email protected] | +61 3 8688 9164

Rating: BUY (unchanged), Price Target: A$0.49/share (unchanged)

PCK-ASX:

• Price: A$0.09
• 52-Week Range (A$): 0.06 - 0.30
• Avg Daily Vol (M): 3.7
• Market Cap (A$M): 100.3
• Shares Out. (M): 1,126.8
• Dividend /Shr (A$): 0.00
• Dividend Yield (%): 0.0
• Net Debt (Cash) (A$M): (13.8) - i.e. net cash (no net debt)
• Enterprise Value (A$M): 86.5

Sep'Q report; COVID-19 impacting enrollments but expanding scope of applications; retain A$0.49 PT

Investment Recommendation

PainChek (PCK-ASX) reported its SepQ result, which reflected the ongoing impact of COVID-19 on its business. Funded Dementia Beds increased a modest c.9.8% qoq to 41,137, and below the 50k threshold required for PCK to recognise all the $1.25m received last qtr as revenue. PCK has recognised revenue on a pro rata basis, equating to $0.75m. Both enrollments and on-boarding slowed considerably in the qtr, reflecting COVID-19 restrictions, particularly in VIC. As restrictions have progressively eased in the last month, it is expected that enrollment and on-boarding should reaccelerate. Cash is sitting at $13.8m following the recent equity raising and should be sufficient to cover the current cash burn of $1.8m/qtr, until beyond CY21. We shall wait for the DecQ result before assessing our current estimates for FY21. While the enterprise level segment has been interrupted, PCK has been making progress in demonstrating the breadth of market opportunity available to it. New business in the HC and disability segments commenced, with the disability sector being a new market opportunity. Four new UK customers signed and a distribution agreement for the Canadian market was executed ahead of the expected regulatory clearance in December. A new research collaboration with Ramsay Health Care (RHC) studying the frail in hospital opens up another long-term opportunity, in our view. We retain our PT of $0.49/sh and our BUY rating.

Key Points

• ARR slowed to $2.79m, up c.5% qoq, from 66,887 contracted beds, with growth in the quarter sourced from 21 new customers covering 75 new RAC facilities. There were a further 6 RACs/521 beds that did not enroll in the Government trial due to pandemicrelated challenges, but significant customers that did contract include Blue Cross and Australian Unity. On-boarded beds were at 26,486, up c.20.3% qoq, related to 123 customers and 315 RACs. PCK needs to reach 75,000 funded beds (41,137 at 30/9) by 31/3 to qualify for the next milestone payment of $0.95m.
• A year of stellar growth - While quarterly growth has temporarily slowed in the face of COVID-19 restrictions, PCK has come a long way in the past year. All the key metrics are up triple digits over the past year. Contracted customers are up c.486%, on-boarded beds are up c.380% and ARR is up c.326%. Our view is industry acceptance of the product is occurring and investors can look through the temporary disruption.
• Expansion continues to build with the HC segment commencing with three paid pilot programmes. The HC segment is a c.$2bn channel serviced by 925 operators. The top 25 providers account for c.$1bn of this funding, the majority of whom are RAC operators as well, and eight of these operators are already PCK customers in the RAC segment. This indicates there is overlap between the customer groups and synergy for PCK as it leverages the RAC segment into the HC segment. PCK also commenced opening up the disability sector (NDIS) with its first paid trial through the Nulsen Group in WA, which services 4,000 users. This sector services c.400k users at present. PCK also resumed signing up RAC customers in the UK with four new customers accounting for c.500 beds in October, and the UK business has now enrolled c.1,500 beds. Active marketing to the sector is in progress that should lead to continued rollout across the remainder of FY21.
• Ongoing research efforts are being disrupted by the pandemic, but the Infant App program (Face only) investigation is nearing completion with preliminary findings showing encouraging data. A submission for regulatory clearance in Australia and the EU is expected in 1Q21. Collaboration with RHC is in its first phase of a two-year study, and the Phillips relationship continues to build, with a view to commercialising the App for vital sign monitoring in hospital as restrictions ease.

--- click on the link at the top for the full Canaccord Genuity Report on PCK ---

01-Sep-2020:  Canaccord Genuity: Lowering Target Price: PainChek Ltd (PCK): Healthcare IT

• Analyst:  Martyn Jacobs | Canaccord Genuity (Australia) Ltd | [email protected] | +61 3 8688 9164
• Rating: BUY (unchanged)
• Price Target: A$0.49 (down from A$0.55)
• Price: A$0.10

FY20 Result - COVID-19 slowing momentum but foundations are strengthening. Move PT to $0.49 from $0.55

Investment Recommendation

PainChek (PCK-ASX) reported a better-than-expected FY20 result, with total revenue of $2.8m (CGe $2.1m), Gross Profit at $2.6m (CGe $1.9m) and an Underlying EBITDA loss of -$3.5m (CGe -$4.1m). Although contracted beds have doubled to over 61k since 1H20, courtesy of the Government-funded program to seed the Australian market, and on-boarded beds nearly tripled in the same period to over 24k beds, momentum slowed in 4Q20 as a result of the COVID-19 related restrictions on the aged care sector. PCK showed that its pivot to digital operations during the pandemic is succeeding and it could grow through this challenging period with over 20% qoq growth in contracted beds. The extension of the Government program to June 2021 should ensure it meets its target of 100k Dementia beds and sets up positive commercial revenues as operators roll onto commercial contracts from January 2021. International expansion was interrupted, particularly in the UK, although there are signs this could pick up again by early CY21. We have subsequently reviewed our assumptions for the UK and RoW and reduced our expectations across FY21-FY22, with a FY21e EBITDA loss at - $1.2m (-$0.5m previously) and positive FY22e EBITDA of $2.7m ($4.1m previously). In conjunction with the dilution from the recent $10m capital raising, we have lowered our DCF valuation by c.11% to $0.49/ sh. We retain our BUY recommendation.

Key Points

User data recap - Contracted customers increased nearly 7x in FY20 to 207, with a nearly 5x increase in aged care facilities (RACs) to 722. Contracted facilities and beds increased c.23% qoq, while funded dementia beds increased c.21% qoq to c.37k. Activated beds increased c.6x to c.24k beds, leaving a backlog of c.35k beds that should be on-boarded in FY21. ARR also increased c.5x to $2.66m and by the end of FY21, ARR should reach c.$7m.

Commercial development activity continues, via the forthcoming Hammond Care Conference where PCK will present its product in conjunction with Pain Australia and inventor of the Abbey Pain Scale (gold standard in Aged Care), Jennifer Abbey, who is on PCK's Advisory Board. PCK is completing two pilot studies for the home care (HC) market, with outcomes scheduled for September. It is expected that commercial launch could happen in the December quarter. Recent marketing has led to significant inbound enquiry for the HC product. Assuming a successful launch, PCK hopes to launch in the UK c.6 months after the Australian launch. In the Australian market, there are c.129k Government-funded HC packages serviced by 925 operators. A successful market entry in FY21 could see a meaningful ramp-up in FY22. We do not begin to allow for the HC market in our estimates until FY23.

Regulatory development - PCK hopes to conclude regulatory clearance in the Canadian market by the end of CY20, with commercial launch to follow in 2H21. PCK should also soon find out from the FDA whether the process it is planning to undertake for its De Novo clearance is acceptable. This would be an important regulatory hurdle to clear, and may encourage investors.

Revised assumptions for the UK and RoW markets stem from the COVID-19 induced slowdown. As a result, we move our expected average beds in the UK from 30k to 5k for FY21 and from 10K to 1K for the RoW. In FY22, the UK moves to 35k from 55K and the RoW to 6.5k from 55k. We have also slightly reduced our Australian average bed assumptions in FY21 to 11k from 115k, but increased in FY22 to 180k from 145k, expecting there to be some catch-up post COVID-19.

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27-Feb-2020:  Canaccord Genuity:  PainChek Ltd (PCK):  1H20 result - building momentum

Rating:  "Buy".  TP: $0.55.

25-Nov-2019:  Martyn Jacobs from Canaccord Genuity (Australia): Initiation of Coverage - Pain management for dementia sufferers with global reach

PainChek Limited (PCK) has developed a patented technology in the form of a mobile app that uses existing smartphone and tablet hardware, along with AI technology, to analyse facial expressions that indicate pain in real time. The technology can help carers identify the presence of pain when it isn’t obvious, quantify the severity of pain when it is, and monitor the effectiveness of interventions by aged care staff/medical personnel. Importantly, the device assesses pain criteria for accreditation and provides evidence to facilitate aged care operator funding. PCK’s Adult App has been approved by the Australian (TGA) and European (CE) regulators, and it will be seeking a De Novo clearance from the US FDA in CY20. While PCK is not yet profitable, we are attracted to the global opportunity, the traction in the Australian market, recent $5m Government grant and opening up of the UK market. These factors represent positive signs for this emerging operator that services a critical need. We initiate coverage on PainChek (PCK) with a BUY recommendation and a DCF based valuation of $0.55/share.

[Note:  PCK closed at 21.5 cents on Friday (29-Nov-2019), so Canaccord's Martyn Jacobs is suggesting there's +155.8% upside in PCK - to reach his valuation of 55 cents.]

Target markets: PCK has two essential markets: those living with dementia and infants who suffer pain but cannot communicate it. Globally there are c.47.5m dementia sufferers, and the number of infants is c.400m. Importantly, the users of the device are the carers, health professionals, etc., and therefore the number of devices is actually multiples of the number of people experiencing pain.

Automating existing process in aged care: The device automates the existing Abbey Scale standard of pain assessment, which has been conducted manually. The data collected by the device can be seamlessly integrated into operator backend IT and administration systems, and these service providers represent a key distribution point for entering the aged care market. It is interesting to note and PCK advises that this is the first time a medical device has entered the aged care market before the hospital market. Note that the hospital and home care markets represent opportunities for PCK over time as well.

Infant's market entry expected FY21: The pre-verbal children’s application is currently undergoing a trial at the Murdoch Children’s Research Institute, with the study expected to be completed in 3QFY20.

Valuation: We use a two-stage DCF valuation and arrive at $0.55/share price target (WACC: 11.5%). While PCK is in its early commercialization phase, even revenue multiples don't do justice to an assessment of the potential for this business. It will clearly need to grow into its valuation to justify the premium in the share price. Yet we consider PCK is worthy of broad investor interest. This unique technology provides a breakthrough to an intractable problem in the aged care sector, which is in desperate need of technological solutions to support the care of the elderly and particularly those living with dementia.

Disclosure:  Not held.