COMPANY Compumedics Limited| CMP | $0.58/share | Market Cap...

	Column 1	Column 2	Column 3	Column 4	Column 5
0	COMPANY Compumedics Limited	CMP	$0.58/share	Market Cap $102m[/P]	Date: 28 June 2018
1	RECOMMENDATION Buy	High Risk	$1.70/share target (Previously $1.90/share target)[/P]
2	EVENT Short term slippage, Stronger pipeline
3	KEY POINTS
4	· Today CMP downgraded FY’18F EBITDA guidance from $5m to $3m, and upgraded medium term pipeline.
5	· CMP is taking a hands-on approach to reduce slippage in core US and deliver with China, MEG and SomFit.
6	· Key milestones in 1Q’19F are start of MEG commissioning and signing of Health100 contract for SomFit.
7	· We lower our PT 10% to $1.70/share for short term slippage and note FY’20F EV/EBITDA is just 3.3x. We stay with our Buy recommendation.
8	FY'20F METRICS PER 4.7x	EV/EBITDA 3.3x	Yield 16.0%[/P]
9	LINK TO FINANCIAL SUMMARY RN_CMP_280618 and our CMP/Health100 Report RR_CMP_310518
10	CMP’s RESPONSE TO SLIPPAGE IS THE KEY
11	Event: CMP has downgraded FY’18F EBITDA guidance from $5m to $3m Updates on step-out growth for medium term are improving Impact: Short Term…FY’18F EBITDA lowered 40% to $3m – see model below US core sleep and neuro device sales have been delayed for the second year in a row – lowering EBITDA by $1.5m It appears hospitals and sleep labs are extending life of devices from usual 7 years to 9 years The first MEG sale is 60% complete vs the forecast 100% - lowering EBITDA by $0.8m Understandable to have a few months delay with first machine. It has to be done well for a happy customer and solid reference site The key is the response to the second year of slippage USA…and CMP is taking a hands on approach: Sticking with proven US sales management team, and working with them to ensure sales persons are well supported and have transparent communication Ensuring the full suite of CMP products are delivered on time and existing products are maintained well Developing sales pipeline in other regions such as China Bring in a new Non-Executive Director to provide more oversight We keep track of major core device peer, Natus (BABY.NASDAQ) and it is underperforming CMP. ACTION: We will downgrade US sales in short and medium term until there is traction with new sales team and lower cost device. FY’18F to FY’20F EBITDA for core sleep devices down $2m/annum. FY’19…strongest pre-orders on record…$40m vs our FY’19F revenue of $55m...Includes very good orders from long term Chinese distributors CMP is banking on Chinese orders of core devices backfilling the US slippage ACTION: We will add 15% to Chinese core sales in medium term. Additional $0.5m EBITDA.. Medium Term…60 MEG orders in pipeline, 1m SomFit order from Health100 This MEG pipeline has added ~20 units since last update. As the 1st MEG is commissioned in 1HFY’19 we should see a small group of say 3 or 4 customers be highlighted as short term targets. CMP is still confident of finalising the Health100 deal by 16 August.
12	INVESTMENT OVERVIEW
13	Short term earnings slippage is normal with fast growing MedTech companies like CMP. We stay with a Buy recommendation because CMP is responding to the hurdles, and is still generating positive cash flow. We still see a significant opportunity with core platform, albeit with another year’s delay. We lower our PT 20% to $1.50/share The step out growth with MEG and SomFit is becoming better proven and is very well partnered. This provides opportunity for significant upgrades to valuation and price target over the next 12 months.
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15	Should you have any queries, please do not hesitate to contact me on +61 3 8633 9864.