Goldman Sachs upgraded price target to 53.8:

"Buy - Pro Medicus Ltd. - (PME.AX)

Flagship contracts further validate technology advantage and underpin longer-dated growth profile; upgrade to Buy

17 February 2021 | 7:57PM AEDT

Whilst many healthcare IT projects continue to face uncertainties associated with Covid-19, the demand for PME's Visage 7 PACS technology has been robust, speaking to the strength of the solution, as well as the growing importance of an IT system that can improve efficiencies whilst healthcare imaging data continues to grow exponentially.

Through a highly challenging period, the cadence of PME's contract wins has actually increased, whilst the quality/breadth of the customer base has also strengthened. In the last 8 months alone, PME has signed 6 new contracts at an average minimum size of $24m, including a further 3 of the Top 10 hospitals in the country (against a trailing 3-year average of 5 and $15m respectively). The customer list includes many of the leading academic facilities in the US/World and, whilst this group is less price-sensitive than the broader market, the high adoption rates amongst this cohort provide clear vindication of PME's technology advantage. Furthermore, we believe the heightened rate of uptake underlines the increased value being ascribed by hospitals towards solutions that can provide additional flexibility/resilience; a theme we expect to persist. 

Nearer term, we believe Visage 7 looks set for a robust period of transaction volumes as PME on-boards several large accounts, and as its existing customer base, which is disproportionately skewed to high-volume institutions, seek to process a period of elevated healthcare/imaging demand as operations continue to normalize (in line with our broader sector views and those of Global GS Research).

On our forecasts, PME currently trades on 60x NTM EV/EBITDA (noting we are +50-60% above EBITDA consensus in FY22-23 after incorporating the latest contract wins and tweaking the near-term run-rate). Whilst not cheap in absolute terms, our new estimates imply a +42% EBITDA CAGR (FY20-23E). In the context of ASX Healthcare, which trades at a 'multiple to growth' ratio of 2.9x, we do not see PME's ratio of 1.4x as demanding, particularly given its position as a technology leader in a market we believe is set for further technology upgrades, and a recurrent revenue model with inherent upside. We upgrade to Buy.

Continuing to bolster a stellar customer list

We believe the size and nature of PME's customer base provides strong validation of its technology advantage over the competition. Visage now has contracts with 5 of the Top 10 hospitals in the US (7 of the Top 20), a cohort which is generally well-funded and tends to seek high quality solutions. PME has now won each of the last six major tenders in which it has participated. Notably, the recent processes with flagship institutions (NYU Langone and UC Health) were highly competitive. Leading industry providers were invited to demonstrate their solution in onsite pilots and in both cases Visage received unanimous endorsement. In addition, there appears to be a positive network effect whereby leading KOLs are sharing positive experiences with one another, a feature which has been corroborated in our own conversations with the customer base.

Visage 7 contracts are invariably multi-year (usually 5-7), and written with minimum commitments such that each has 25%+ upside above the disclosed contract size provided the customer holds imaging volumes constant post implementation (in most cases, volumes tend to increase due to inherent efficiency gains)."

Interestingly their FY20-23 forecast growth rates are approximately in line with mine (from my valuation) for NPAT and below mine for Revenue and EBIT