Pro Medicus Secures Record $200M Contracts, Achieves 30% Annual Growth in Medical Imaging Software

About Pro Medicus Limited

Pro Medicus Limited (ProMedicus, ASX: PME, or the Group) was founded in 1983 and is a global provider of medical imaging and software services to hospitals, imaging centres and health care groups. Its main product, Visage 7, is a clinical desktop application used by radiologists to view images from any device to make a diagnosis.

Profit and revenue growing at 30 percent each year

Record contract wins in the half-year to December 2023 have laid the foundation for continued revenue and earnings growth over the next decade. Key contract wins worth a combined minimum of $200 million were awarded in the December 2023 half-year.  The contracts have an average 7-to-10-year duration and so build on the existing recurring revenue base of the Group. Significantly, these contracts include all three Pro Medicus software service options, being Viewer, Workflow, and Archive service options. Contracts that include all three product options provide higher contract values and greater profit margins. Also, all these contracts involve the transition to Cloud, which enables faster implementation and saves on hardware costs.

Pro Medicus earned $36.3 million after tax for the December half-year on revenue of $74.1 million. The Group enjoys high operating leverage as reflected in its 66 percent EBIT margin. Medical imaging software is highly scalable in that it works on the simple principle of “build it once and sell it many times.” This enables the Group to provide a 5-year forward revenue estimate of $608 million. The estimate assumes key contracts due for renewal are renewed at the existing rate and is equivalent to an approximate annual revenue growth rate of 30 percent per year.

Low Beta implies superior risk-adjusted returns

Pro Medicus exhibits low share price volatility which is typical of large capitalisation healthcare stocks.

A company’s share price volatility is measured in terms of its comparison with overall share market volatility. Known as the Beta coefficient, it measures an individual company’s share price volatility in proportion to price movements of the stock market as a whole. Called market risk, Beta has a coefficient of one. A Beta of less than one means that an individual stock has less share price volatility than the overall share market. A Beta of more than one implies the opposite in that it implies greater share price volatility than the overall market.

Pro Medicus has an average 5-year Beta of just 0.49. This means that for every ten percent fall in the overall share market, Pro Medicus shares decline by 4.9 percent, or less than half of the market decline. However, because Beta is a measure of volatility, it also means that for every ten percent increase in the share market, Pro Medicus shares increase by only 4.9 percent.

The Future

The Group’s already high EBIT margin of 66 percent should increase as its global footprint increases into Europe. Currently less than 10 percent of revenue is generated in Europe with about 80 percent of revenue earned in North America and the balance from its Australian operations.  While North America is a key market, Europe is more of a medium-term opportunity. This is because the European hospital market is largely government funded and has a material bureaucratic overlay which delays decision-making.

According to the latest US News Best Hospital ratings, Pro Medicus provides imaging solutions to nine of the top twenty-two US hospitals, more than any other medical imaging vendor. This existing market penetration is important in that Pro Medicus has plans to progress its imaging technology into cardiology, based around cardiac ultrasound.

Pro Medicus operates in a stable and defensive sector. Price inflation on contract renewals should support revenue growth. Opportunities to transition its imaging technology to other health disciplines like cardiology, are another long-term source of revenue growth. The Group’s products offer unparallelled radiologist efficiency and greater clinical accuracy that enhances clinician engagement. The December 2023 half-year result is the most successful in the Group’s history and the sales pipeline continues to build strongly, indicating the potential for steady long-term shareholder value accretion.