Pro Medicus, When Software Meets Healthcare

Why is this small-cap Australian stock one most expensive at the moment?

Pro Medicus is a developer and supplier of healthcare imaging software and services to hospitals, diagnostic imaging groups and other related health entities in Australia, North America and Europe. The principal activities of the Group are the development and supply of healthcare imaging software, Radiology Information System (RIS) software and services to hospitals, diagnostic imaging groups and other related health entities.

With incredible metrics, the company has huge fundamentals. However, it is also one of the most expensive currently with a FCF yield expected to be just above 1%… in 2 years! Since 2013, the sales have been multiplied by 10x to AU$124M in 2023. Just another metric: PS is above 60x!

So what justifies this price? What are the competitive advantages and the qualities of this company? What could be its fair price? Discover all you need to know in this article!

Company overview

The two main products of the companies are:

• Visage RIS – Proprietary medical software for practice management, training, installation and professional services, after-sale support and service products, Promedicus.net secure email and Integration products

• Visage 7 – Healthcare imaging software that provides radiologists and clinicians with advanced visualisation capability for rapidly viewing 2-D, 3-D and 4-D medical images, Picture Archive and Communication System (PACS) / Digital Imaging software that is sold directly and to original equipment manufacturers (OEM), training, installation and professional services and support products

Sales are mostly in North America for now (84%). Australia represents around 13% of the sales. Europe is the remaining part.

The competitive advantages

As s sign of a competitive advantage, we have profitability that is skyrocket high. 5y average ROE and ROIC are both above 40%. TTM (Trailing Twelve Months) ROE and ROIC are even close to 50%.

A lot of advantages come from the product quality:

• Their software is renowned for being the market leader when it comes to speed, functionality and scalability. The product is faster as it can stream images, is easier to use and has a lot of exclusive functions.

• The software are also more efficient, saving energy and there time + cost.

• Being modular, the solution adapts to the needs of its customers. It uses AI to improve its performance.

• It is also a cloud solution creating scalability and efficiency + security.

These elements also explain why the company is gaining market share. Their strategy is quite clear with 3 pillars:

• Have the best-in-class software of the industry

• Make a meaningful impact on customer financial and clinical outcomes

• Sustain revenue and NPAT margin growth

This strategy is very focused on customer, which is probably a great idea. Having the best product, providing a lot of value for the customer creates a moat. This is a sign of long term oriented mindset!

Sign of this product quality, Pro Medicus has been ranked #1 universal viewer in the last KLAS (equivalent of Gartner in Healthcare IT) software & service report. You can find some details just here.

Market by 2030