This may be of interest. Alcidion Group LtdHealthcare IT |...

This may be of interest.

Alcidion Group Ltd

Healthcare IT | Lowering Target Price

2Q24 - in line, focus on timing of NHS delay resolution

ALC-ASX | Price A$0.06 | Market Cap A$76.5M BUYUnchanged PRICE TARGET A$0.10↓ from A$0.13

Investment Recommendation

ALC reported its 2Q24 result, in line with expectations, citing ongoing slow revenue and TCV growth. NHS procurement delays, which have been an issue for the last ~2 years, continue to put pressure on growth cadence and on the stock. Management reports an acceleration of new contract tenders and decisions in the upcoming half, noting timing risk is outside its control. This puts some pressure on our FY24 outlook and on positive FY24 EBITDA guidance, with more colour expected at the FY result in February. Despite the near-term lumpiness, we continue to like ALC given (albeit heavily, ongoing delayed) tailwinds in digitising systems across NHS, opportunity for improved TCV and customer upselling, and differentiated and well-regarded product. We continue to view the stock as cheap, and see the potential for an inflection point pending the announcement of several large NHS contracts to restore investor confidence in the sustainability of growth prospects.

Result summary New TCV added in 2Q24 (notoriously lumpy) was $21.8m, mostly attributable to the $23.3m South Tees contract extension. The company reported $35.3m in contracted revenue for FY24. Operating cash outflow was $3.4m, noting there was a $7.3m debtor balance at the end of the quarter, including $3.9m from a major customer which was collected first week January 2024. Cash at 31 December was $7.9m, which combined with the $3.9m January payment, should be sufficient to fund ongoing operations with approaching EBITDA breakeven. Management has worked to rationalise costs, with an opex cut of $2.4m, which should have a +$1.2m positive impact in the 2H. Our view Slower contract appointment and implementations have negatively impacted many digital health companies targeting NHS. The delays we have seen are not specific to ALC, and timing continues to remain outside management's control. This is slightly concerning, given the potential for a revenue drop-off in FY25. We are relieved by commentary around numerous contracts coming to tender in the 2H, but note ongoing risk to timing. While some form of EPR has been implemented in 90% of NHS trusts (a statement put out by the group to gain traction among voters and for policymakers), they are only at ~20% functionality, leaving significant room for improvement. We continue to like the modular nature of ALC's technology, which means the company can deploy its offering to customers quickly, adding a competitive advantage under uncertain economic and political backdrops. Forecast changes Slight downgrades to 2H24 outlook, since we view our previous FY24 outlook as overly optimistic given the slower pace of new contract additions. Based on commentary, we are confident in an improved FY25, but 2H remains in question. FY24 breakeven could be achieved (just) depending on the quantum of new contract adds, but may be pushed out, pending timing. Valuation and recommendation We maintain our BUY rating and reduce our DCF-based price target to $0.10 on near-term forecast changes. The company trades on 1.4x FactSet consensus FY25E EV/revenue, a material discount to ASX-listed HCIT peers (averaging 3.3x) and in line with global HCIT peers (1.6x FY25E EV/ Sales).

Elyse Shapiro | Analyst | Canaccord Genuity (Australia) Ltd. | [email protected] | +61.3.8688.9136