$1 Price Target

	Column 1	Column 2	Column 3	Column 4	Column 5	Column 6	Column 7	Column 8	Column 9	Column 10	Column 11	Column 12	Column 13
0	COMPANY Compumedics Limited	CMP	$0.56/share	MCap $99m[/P]	Date: 10 July 2017
1	RECOMMENDATION Buy	High Risk	$1.00/share target (Previously –Buy	$1.11/share target)[/P]
2	EVENT - Step-out and supply chain reduce ongoing slippage
3	KEY POINTS
4	· CMP’s delay of $5m FY’17F core diagnostic sales leads to a halving of FY’17F EBITDA.
5	· This slippage takes shine of strong success with step out growth with MEG and eHealth versus peers.
6	· We are confident that technical and cost advantages will remain sound across core diagnostic to step-outs in MEG and eHealth and lift long term DCF by 22%.
7	· We see 4QFY’17 sales slip being delivered in 1H’18F and a breakout earnings year in FY’18F, and stay with a Buy recommendation. Our 12 Month Price Target is reduced 10% to $1.00/share until 1H’18F is confirmed
8	FY18F METRICS PER 12.3x	EV/EBITDA 7.7x	Yield 0.0%[/P]
9	LINK TO REPORT RR_CMP_100717
10	ACTIONS TO REDUCE SLIPPAGE
11	CMP lowered FY’17F revenue guidance from $38m to $33m with delay of $5m core diagnostic sales to 1Q’18. This led to FY’17F EBITDA guidance being lowered from ~$4.5m to between $2.1m and $3.6m. Most of the associated costs were already expensed. 2H’17 step-out success with MEG and eHealth was in line with our estimate. One MEG sale was signed for delivery in FY’18F, and US eHealth sales augmented Chinese sales. Our FY’17F EBITDA is halved from ~$4.50m to $2.25m vs $5.0m pcp. We keep our FY’18F sales at $49.5m with: Core diagnostic at $36m (+9% on pcp), MEG at $10m vs. $0m pcp, and eHealth $4.5m EBITDA vs. $0.5m pcp. CMP can now supply both premium and mid-tier diagnostic equipment by: streamlining its low cost global diagnostic machine supply chain (one-off cost $0.6m); and, replacing half of its eight strong US sales team (one-off cost $1m). We note that CMP’s major competitor in core diagnostics, Natus (BABY.NASDAQ), has had flat sales since CY’15. CMP is bringing a wider range of offerings across all channels (traditional sleep clinics, general practice, at home) with rejuvenated US sales beside EU and Asian teams. MEG growth in FY’18F and FY’19F is set to meet our ambitious forecast of five unit sales with: one already signed; four at detailed stage; and, another 35 at preliminary stage. Each sale is worth $5m with ~$3m of EBITDA eHealth FY18F sales of $4.5m can now be met by a mix of US sales ($0.3m recurring sales already locked in) and a third of the $10m of Chinese contract.
12	INVESTMENT OVERVIEW
13	· We are confident that CMP’s technical and cost advantages are sound across core diagnostic to step-outs in MEG and eHealth and lift long term DCF by 22% to $1.35/share. · We see a breakout earnings year in FY’18F. and stay with a Buy recommendation. · We lower PT 10% to $1.00/share for modest increase to earnings risk from further core earnings’ slippage.
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15	Should you have any queries, please do not hesitate to contact me on +61 3 8633 9864.
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17	Paul JenszExecutive Director - ResearchPAC Partners Level 10, 330 Collins Street Melbourne VIC 3000Phone: +61 3 8633 9864www.pacpartners.com.au
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Recommendation CriteriaInvestment View
PAC Partners Investment View is based on an absolute 1-year total return equal to capital appreciation plus yield.| | | | |
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Buy​

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Hold​

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Sell​

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>20%​

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20% – 5%​

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<5%​

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