Consensus community valuation
A compounder here Ladies & Gentlemen>
CHAIRMAN’S REPORT (some of the Presentation below)
During the FY24 year the company announced 9 new contract wins in North America including our largest contract to date, Baylor Scott & White, which as of mid- September is fully live, along with many others implemented during the year. (Dr. Hupert will go through the details of these contracts in his presentation). Since 1 July 2024 the Company has announced two significant client renewals, one in North America and one in Australia, both at increased fee levels. Despite the number of new additions to our client base, new opportunities continue to present themselves and as a result our pipeline remains strong
Financial Results FY2024 was another record year for the company with revenue increasing by 29.3% to $161.5 million and net profit after tax increasing by 36.5% to $82.8 million. The Company continued to be cash flow positive with retained cash and liquid investments increasing from $121.5 million to $155.4 million, after a $A2.77m buyback of shares in February/March, a $US5m investment in cardiac CT AI company Elucid and paying increased dividends. The Board anticipates FY25 will be another strong year. The budget for the current financial year has been determined recognising anticipated continuing strong growth, from both existing and new clients. I am pleased to advise that results to date are ahead of budget on a constant currency basis and an Australian dollar basis, despite some volatility in currency markets during the period. We anticipate that the second half of the financial year will be stronger than the first half, as is traditionally the case.
Whome are they?
A look back to the June 2024 Annual Report:
>> I Just clarifying the employee head count its '120' worldwide <<
PME ASX: Pro Medicus’ Sam Hupert says simplicity secret of success
Hupert’s message to investors this week was one of “steady as she goes”. There are no plans to raise capital, make major acquisitions or veer away from the model that has been working for the past 10 years. “We have been able to fund growth organically and profitably. Touch wood, it has gone well for us. We didn’t imagine we would be quite here,” he says.
For a company worth $18 billion, its staff numbers are extraordinarily low at 120. It is headquartered in Melbourne, has an office in San Diego and an R&D centre in Berlin. The two inventors of its cloud software platform work for the company as chief technology officer and the head of development.
Eye watering return there below:
Return (inc div) 1yr: 158.49% 3yr: 54.37% pa 5yr: 54.44% pa
Posting in PME since the ALQ activity is like a graveyard there.
Everyone complains about PME being expensive
If ALQ has a PE of 600x, then PME must be good value?
Meanwhile I'm still trying to get to the bottom of why the PE of ALQ has skyrocketed.
HIGHLIGHTS Signs five new customer contracts with a combined minimum value of A$45.0M Broad range of customers - multiple segments of the market New contracts are transaction-based with potential upside
The contracts will be fully Cloud deployed and are expected to be completed within the next 6 months:
A $9.5M, 5-year contract with Consulting Radiology, a private radiology group in Minnesota
A $11.5M, 7-year contract with Nationwide Children’s Hospital, a leading paediatric hospital in Columbus, Ohio
A $6.5M, 5-year contract with Nicklaus Childrens Hospital, a leading paediatric hospital in Miami, Florida
A $9M, 8-year contract with Moffitt Cancer Center, in Tampa, Florida
A $8.5M, 5-year contract with US Radiology Specialists, a partnership of physician owned radiology practices. The contracts bring the company’s minimum total contract value (TCV) for new sales this financial year to $245 million.
Return (inc div) 1yr: 93.91% 3yr: 37.59% pa 5yr: 39.48% pa
Latest pe ratio: 173% (the high pe puts many Investors off)
Thursday 2nd May 2024: PME have just made another all time high today - a intraday high of $112.59 before closing at $112.10.
PME, you've done it again!
And I still do not own any PME in my real money portfolios - just here on Strawman - where I paid between $20.16 and $27.87 per share back in the first half of 2020, and that position is showing a +50.92%p.a. return over the past 4 years despite me trimming the position all the way up. Just couldn't bring myself to pay up for them with real money, as they always look fully priced or expensive, however they just keep on rising regardless!
18-Aug-2021: $77 is my 12 month target price (TP) rather than a fundamental intrinsic valuation. My $77 TP is based on momentum and continued tailwinds combined with a very high calibre management team that continue to deliver. It's actually not such a stretch when you consider they've risen +164.8% from $24.68 one year ago to close at $65.35 today.
03-Oct-2022: Yeah, nah! That did not happen. After building nicely thru to early Jan, PME have had a falling share price through to mid-June, and while it did build back up to almost $60 in September, the last couple of weeks has been negative for the SP. This is not one I hold in real life - it's just in my SM portfolio. I like the company, but wouldn't want to pay over $40/share for it. I think this one could pull back towards $45, maybe even get back down to $40 if the market keeps having big down days, but I'm setting a $65 2-year price target (PT) for PME today, so $65/share by early October 2024. They are a quality company, but I don't know enough about the competitive landscape within their industry to be confident to invest in them IRL, unless they looked really cheap, and the don't up here, not to me anyway.
So, my PT is not to be taken too seriously, because PME is not within my circle of competence, so I don't really have any strong conviction about what the company is worth, or what their realistic upside potential is from here. I know they've done very well thus far, but past performance can not be relied upon to accurately predict future performance. And that's all I've really got to work with in PME's case, due to a knowledge deficit on my part. Just not my area.
04-March-2024: Update: Raising PT to $124. Not much you can say about PME - about to be added to the ASX100 Index (on March 18th) - wish I held them IRL instead of just here on SM...
From Monday 18-March-2024, Pro Medicus (PME) will be in the S&P/ASX100 Index.
SP-DJI-Announces-March-2024-Quarterly-Rebalance.PDF
Yet another spectacular set of numbers from one of the best businesses on the ASX.
I know you shouldn't be fussy with price when it comes to great companies, but Pro Medicus is on a PE of 127..
That could represent value, but you'd need to see at least something like 25% average annual compound growth in NPAT for 10 years, and for shares to then trade at a PE of 35 in 2033. If that happened, you get a 10% average annual capital gain.
Over the last 5 years, the CAGR in EPS has been about 35%. So if you extrapolate that forward and apply a terminal PE of 35 (about what CSL trades on), then your average annual capital gain is something like 18%pa over 10 years. On these assumptions, the company would have a NPAT of $1.2b in 10 years -- and that's perhaps not too much of a stretch, especially with expansion into other areas.
So I'm not saying shares are definitely too expensive, just that a lot of optimism is built in..
(An I'm just bitter having sold down so much over the years. Idiot!)
Yet another record half.
All the details are here, but some highlights include:
- Revenue up 28% to $56.9m
- NPAT up 30% to $27.2m
- Cash up 4.4% to $94.5m
- 3 major contract wins for the half.
This is the strongest half year in the company's (already impressive) history.
The company has grown its top line from $14m in 2014 to well over >$100m for FY23 (pro-rata basis). But what's truly amazing is that they have done this:
- Without raising capital, and an essentially flat share count
- Sustaining insane NET margins (now at around 50%!!)
- Paying out dividends! (divs per share are up 10x since 2014)
- Gushing cash
- Sustaining growth investments
It's a masterclass in capital management, and how structural disruption and network effects can combine to deliver incredible and long-last growth.
The only problem? My estimate for the PE on a forward basis is somewhere around 120x. I've said many times before you shouldn't overthink valuation for high quality, fast growing businesses, but still...
I retain a very small position.
Another very solid result for PreMedicus.
For the FY21 year revenue was 19.5% stronger to just shy of $68m, with net profit up more than 33% to $30.9m as the business continues to scale well.
The top line has grown at an average pace of almost 20%pa for the last 5 years, while NPAT has grown at a stunning 37% per year (on average). Net margins are not only incredibly high, but have steadily improved (see attached chart) -- NPAT *NET* margin now sits at 46%.
It would have been much stronger than this if it werent for FX movements (revenue and NPAT would have been up 30% and 56%, respectively).
Not only that, but all this growth has been entirely self funded, with no new share issues being issued, or virtually any debt, over the last decade. In fact, PME has over $60m in cash at the bank.
It's even paid a consistent and fast growing dividend along the way. For FY21 it'll pay 15c per share all up, 5x more than it did in FY16.
A record number of new contracts were secured over the period, and the sales pipeline remains very "healthy" according to CEO Sam Hupert.
The Research collaboration agreements with with the Mayo Clinic and NYU Langone Health have yieled an FDA approved AI algo for breast density screening, and there's good growth potential there.
I regard this as one of the best businesses on the ASX. The only issue is price, which is rather "full"
On the latest numbers, shares are trading on a Price to Sales of 86 and a PE of 190.
I've had some very serious regret being too fussy on price in the past, but i'm not tempted to buy any more at these levels.
That being said, given the economics and growth runway, shares could be considered 'fair'. EG. assume 30% NPAT growth for 10 years and assume the business trades on a PE of 35 at that time, and you get a FY31 share price of ~$140. Discount that back by 10%pa to today and you get a valuation of $54 -- roughly where it sits now.
The only trouble here is that even if things go extraordinarily well (30% CAGR in net profit for a decade!), you get a market average rate of return. Anything short of that and you'd get an underperformance. So the phrase priced for perfection seems apt.
Of course, perhaps PME exceeds even this. But I find it prudent not to assume such lofty targets -- "margin of safety" being the other phrase that comes tro mind.
Results announcement here
On April Fools day, the company announced a share buy-back of up to 10% of the company's shares over the next year. On current market capitalisation that's a potential range up to $478 million while annual revenue for 2020 was $59.2 million, profit $24.5 million. They don't have a lot of free capital without halting dividends, new investment or resorting to borrowing. Shares rose 15% during April, but have fallen 10% in the first week of May with Wall Street getting nervous on the Tech sector. With a p/e already at 195.5, PME have taken a punt on even brighter days ahead but those treasury shares are going to create a huge loss next year if things head South.
https://www.smh.com.au/business/markets/asx-set-to-fall-as-tech-giants-weigh-down-wall-street-20210505-p57oxr.html
CEO said they were "comfortably ahead of budget" in terms of financial expectations for the current financial year, with expectations for a stronger second half, and a growing sales pipeline.
Spoke to the founder sell-down earlier in the year, which was supposedly ancouraged by the board to improve liquidity. This amounted to 7% of their shareholdings and they continue to hold 54% of the company.
Spoke to using the buy-back to help mitigate added volatility of the share price. Personally I think that is a silly reason. You only buy back shares when (a) you have no better investment opportunities and (b) shares are trading a material discount to managements estimate of fair value. At the current price, I find the second part difficult to reconcile.
Promedicus also talked to their AI capabilities, announcing AI Accelerator which better enables AI developement on their platform. Medical images are perfect for AI, and I see this as an increasingly essential component of their offering.
Full AGM presentation is here
