Telstra Corporation: Some healthy options that are underappreciated
About the author:
- Author name:
- By Nick Harris
- Job title:
- Senior Analyst
- Date posted:
- 24 January 2023, 8:00 AM
- Sectors Covered:
- Telecommunications, Technology
- Telstra Corporation (ASX:TLS) owns one of the largest e-health businesses in ANZ. This segment, Telstra Health, is reported under “other”, is often overlooked, and is growing both quickly and internationally. In this note we review Telstra Health and its potential value, based on peer benchmarking and making some broad assumptions.
- All going to plan Telstra Health could be worth ~$1.5bn /11cps for Telstra Corporation (ASX:TLS) shareholders on our estimates. While not material, we think it is underappreciated.
MedicalDirector operates integrated clinical and practice management software for general practitioners (GPs) and specialists.
Its cloud solution works well for roving doctors (operating outside of head office). It allows users to easily search or enter patient information (electronic health records, patient history and prescriptions), create referrals, and create and track care plans. MedicalDirector has supported health professionals for 30+ years and has had >100 major system upgrades.
It was founded in ANZ and expanded into the UK several years ago.
The software is offered on-premise or via the cloud and is one of the most widely used general practice software in Australia. It services thousands of clinicians delivering 80m+ consultations and more than 57m ePrescriptions.
It operates AusDI, which is an independent curated medical drug database for pharmacy (offering search functionality around product information and product side effects).
PowerHealth’s software is used in almost every public hospital, across a variety of private organisations such as all Healthscope private hospitals in Australia and internationally.
It supports healthcare costing (calculating hospital service delivery costs), billing (real-time multi-sourced invoices and billing rules including general ledger lodgement), analytics (intelligent and actionable insights), RCM (enabling the transformation of a healthcare institutions' revenue cycle management system), budgeting (sophisticated budgeting and financial modelling package for health providers) and patient safety (quality and risk management platform).
How this fits into Telstra Health and the overall Telstra group
Telstra Health combines MedicalDirector (medical practice management software), PowerHealth (hospital management software) and Telstra’s existing e-Health businesses.
It helps healthcare providers and governments digitally connect the health, aged care and social service systems by enabling the seamless flow of information across the continuum of care.
Telstra Health aspires to serve the whole continuum of care. For example, indirectly service patients from the hospital/GP to script fulfilment and everything in between.
Telstra Health customers also include governments (platforms like national cancer screening, 1800RESPECT, electronic medical records and e-script programs).
Government funding and directives on national programs mean credibility is critical and strong governance and political relationships are equally important.
Telstra adds further value, as storing and interoperability of critical patient information requires significant digital infrastructure skills and accreditation.
Telstra Health financial snapshot
Telstra Health generates ~$250m revenue now and is targeting $500m by FY25, which requires a 26% revenue CAGR. Today it’s broadly cash flow breakeven.
Based on peer benchmarking and some broad assumptions we think Telstra Health could generate ~$50m of EBIT by FY25 and could be worth $1-1.5bn (8-13cps).
Closest comps / ‘nearology’
Telstra Health resembles Enterprise Resource Planning / accounting firms like TNE, OCL and XRO. It provides the core business software and processes.
This means long-duration (sticky) customers but also means sales cycles and software implementations can take years to complete. Peers trade on high multiples reflecting impressive delivery and characteristics of defensiveness and growth.
Telstra Health’s organic revenue growth needs to accelerate 2-3x current levels to reach its FY25 revenue target.
Our numbers are purely theoretical so the final result (and the perceived fair value of Telstra Health) could vary greatly.
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