Pro Medicus: Back to fair value

About the author:

Iain Wilkie
Author name:
By Iain Wilkie
Job title:
Research Analyst
Date posted:
01 October 2021, 8:30 AM
Sectors Covered:
Healthcare and Life Sciences

  • Pro Medicus (ASX:PME) has announced the signing of US-based Novant Health on a 7-year A$40m contract for the workflow and viewer products.  
  • The transaction-based contract represents PME’s largest (tied) contract to date and offers further upside as study volumes increase and comes after a competitive tendering process, highlighting the strength of the offering.
  • With the contract value in-line with our FY22 assumptions, we make no further changes to our forecasts. Given the recent share price weakness, we view current prices represent fair value and upgrade our recommendation to a Hold (from Reduce).
  • Our target price remains unchanged at (login to view)

New large contract highlights major drawcard to PME technology 

PME has announced it has signed a new contract with Novant Health on a 7-year deal for A$40m for its Visage 7 Workflow and Viewer products.

Novant is an integrated delivery network (IDN) which services 15 medical centres and hundreds of outpatient facilities, servicing more than 6m patients annually.

The contract is a transaction-based model which provides further upside as study volumes increase. Given the style of network, this is likely to provide further upside potential in coming years.

Go-live on the contract is anticipated 2H22 although planning and implementation work is expected to commence immediately.

The contract is another cloud installation which has been a major drawcard for PME and a feature of a number of recent contracts (3 of last 6 contracts).

The contract adds ~A$5.7m in A.R.R p.a. once implemented and importantly marks the first major contract signed since February (UC academic health network: $31m / 7 years).


A strong announcement which highlights the quality of the offering given the contract to replace multiple legacy PACS solutions for multiple products.

The deal marks the seventh major contract over the last 18 months, with the five year contracted pipeline now sitting at an impressive A$350m.

Forecasts and valuation update: no changes to forecasts

With go-live expected in 2H, the contract falls within our FY22 new contract assumptions.

While management commentary suggests new contract pipeline continues to remain strong, we make no changes to our forecasts.

Investment view: Valuation the only barrier

While valuations remain elevated (~130x FY22 PE), we view PME as a highly impressive company with a strong and growing contracted revenue base which should continue to grow into its high multiple over time.

Valuation remains the only barrier to further positivity. In the absence of additional large contracts beyond our near-term assumptions, we continue to look for further market weakness and opportunities below (login to view)


The key downside risk is extended disruptions caused by COVID creating barriers for system implementations and decision making processes.

The key upside is faster adoption of the technology (contracts above our forecast run-rate).

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Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

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