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Treasure Chest: Pro Medicus Opportunity Immense

Treasure Chest | Oct 20 2016

This story features PRO MEDICUS LIMITED. For more info SHARE ANALYSIS: PME

Moelis upgrades medical imaging software company Pro Medicus to Buy, citing an extensive growth opportunity in the US.

– Unrivalled streaming speed
– Software difficult to replicate
– Margins surprise
– Requests for proposal mount


By Greg Peel

Pro Medicus ((PME)) provides medical imaging software and practice management workflow software to hospitals and radiology clinics in Australia, North America and Europe.

Medical imaging represents 80% of sales. The company’s software enables 2D, 3D and even 4D, apparently, images of x-ray, CT and MRI scans and the like to be rapidly streamed to clinicians’ computers, tablets and phones for diagnosis. The imaging software extends beyond radiology and into cardiology, oncology, neurology and pathology.

Back in April, Pro Medicus won a large, long term contract to roll-out its software for Mercy Health, one of the largest Catholic healthcare groups in the US (Pro Medicus Raises Its Stake In US Market).

Despite winning nine out of ten recent requests for proposal, the Pro Medicus’ US market share is only around 4%, prompting stockbroker Moelis to suggest the company’s opportunity in the US is “immense”. Feedback from users of competing software have confirmed the Pro Medicus technology offers unrivalled speed for on-demand medical image streaming. One customer reported a 10% jump in volumes thanks to the speed of the service.

This has prompted rivals into attempting to replicate the Pro Medicus software, but without success. None have made it into production, suggesting a significant barrier to entry for the competition.

Moelis estimates Pro Medicus has another 10-12 requests for proposal in the pipeline at present and forecasts more contract wins over the next twelve months. The company’s recently released FY16 profit report showed sales in line with Moelis’ forecast but the earnings margin came in 350 basis points better than the broker expected, underscoring the operational leverage of the software.

As a biotech-meets-SaaS operation, Pro Medicus stands out as high cash generation, high return business. Moelis forecasts a return on equity of around 30% in FY17 and a return on invested capital of around 90%. The broker has upgraded its recommendation to Buy, with a $6.10 target (last trade circa $5.00).

Next month’s Radiological Society of North America conference will prove a key marketing event for the company, Moelis notes.

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