Company Reports

Pro Medicus’ strategy revolves around renewing existing contracts and winning new clients for its main product, Visage 7, while increasing its price point. The company won six out of six major public tenders it competed for in fiscal 2021, which often involved on-site pilot tests. While this likely highlights Visage 7’s current superior speed, scalability, and resilience, continued investment in research and development is imperative for the firm to remain at the forefront of innovation and consistently win contracts. Most of the firm’s expenses are allocated to over 40 software engineers with the main R&D center located in Berlin. The company also recently extended its R&D capability in New York in collaboration with NYU Langone Health in 2021. Its R&D efforts mostly revolve around software enhancements, program extensions, and research in artificial intelligence to assist in diagnoses.

Narrow-moat Pro Medicus grew first-half fiscal 2024 underlying pretax profit strongly by 29% to AUD 49 million. But revenue outside its core U.S. market was slightly weaker than expected, and staffing costs have picked up. With a weaker U.S. dollar, we decrease our EPS estimates by an average of 3% over our 10-year forecast period. However, the overall valuation impact was offset by the time value of money and reduced forecast investment in working capital, and we maintain our AUD 34.50 fair value estimate.

Pro Medicus’ strategy revolves around renewing existing contracts and winning new clients for its main product, Visage 7, while increasing its price point. The company won six out of six major public tenders it competed for in fiscal 2021, which often involved on-site pilot tests. While this likely highlights Visage 7’s current superior speed, scalability, and resilience, continued investment in research and development is imperative for the firm to remain at the forefront of innovation and consistently win contracts. Most of the firm’s expenses are allocated to over 40 software engineers with the main R&D center located in Berlin. The company also recently extended its R&D capability in New York in collaboration with NYU Langone Health in 2021. Its R&D efforts mostly revolve around software enhancements, program extensions, and research in artificial intelligence to assist in diagnoses.

Pro Medicus announced a contract win with Oregon Health & Science University for a total committed minimum value of AUD 20 million over eight years. OHSU is a key academic medical center in the state of Oregon. Planning for the rollout is commencing immediately based on Pro Medicus’ established cloud-based implementation and we assume a nine-month earnings contribution in fiscal 2025, making up 1% of our total fiscal 2025 revenue forecast of AUD 196 million. Our constant-currency earnings estimates are unchanged as we had assumed further contract wins would contribute to earnings growth.

Pro Medicus’ strategy revolves around renewing existing contracts and winning new clients for its main product, Visage 7, while increasing its price point. The company won six out of six major public tenders it competed for in fiscal 2021, which often involved on-site pilot tests. While this likely highlights Visage 7’s current superior speed, scalability, and resilience, continued investment in research and development is imperative for the firm to remain at the forefront of innovation and consistently win contracts. Most of the firm’s expenses are allocated to over 40 software engineers with the main R&D center located in Berlin. The company also recently extended its R&D capability in New York in collaboration with NYU Langone Health in 2021. Its R&D efforts mostly revolve around software enhancements, program extensions, and research in artificial intelligence to assist in diagnoses.

We raise our fair value estimate for narrow-moat Pro Medicus by 3% to AUD 34.50. Roughly two-thirds of our upgrade was due to the stronger U.S. dollar relative to the Australian dollar and the remainder is due to the time value of money.

Pro Medicus’ strategy revolves around renewing existing contracts and winning new clients for its main product, Visage 7, while increasing its price point. The company won six out of six major public tenders it competed for in fiscal 2021, which often involved on-site pilot tests. While this likely highlights Visage 7’s current superior speed, scalability, and resilience, continued investment in research and development is imperative for the firm to remain at the forefront of innovation and consistently win contracts. Most of the firm’s expenses are allocated to over 40 software engineers with the main R&D center located in Berlin. The company also recently extended its R&D capability in New York in collaboration with NYU Langone Health in 2021. Its R&D efforts mostly revolve around software enhancements, program extensions, and research in artificial intelligence to assist in diagnoses.

We raise our fair value estimate for narrow-moat Pro Medicus by 8% to AUD 33.50. The majority of our upgrade was due to an uplift in Pro Medicus’ contracted revenue following a significant contract win and roughly 25% due to a stronger U.S. dollar.