COMPANY Compumedics (CMP)MCAP A$116m$0.66/shareDate: 5 September...

COMPANY Compumedics (CMP)	MCAP A$116m	$0.66/share	Date: 5 September 2019
RECOMMENDATION Buy | PT $0.95/share | High Risk
EVENT FY19 | Tangible brain diagnostic platform with blue sky
KEY POINTS
·FY’19 EBITDA of $5.9m is the first significant lift after four years of $4m to $5m. 2H’19’s $4.5m is 55% bigger than any other HY.
·We estimate the Base sleep & neuro diagnostics delivered $6.2m and the first breakeven result from Step-outs of -$0.3m with two parts delivering cash(MEG $0.2m, eHealth $0.5m, SomFit -$1.0m)
·After success of two Step-outs and Base we stay with our forecast of a significant ramp-up over three years to EBITDA of $20m, with 30% from Base and 70% from Step-outs
·CMP has set a conservative FY’20 EBITDA target of $6.5m to $7.5m without any contribution from MEG. Our report tries to show the three steps to link FY’19 $5.9m to $20m over 3 years.
FY’21F METRICS PER 12.4x | EV/EBITDA 8.5x | Yield 2%
LINK TO RESEARCH REPORT RR_CMP_050919 (6 pages)
OPPORTUNITIES TO MEET CMP MANAGEMENT - Please contact PAC Partners representative Tuesday 10 September - Melbourne Tuesday 8 October - Sydney INVESTMENT VIEW
We retain a Buy on CMP and expect it to re-rate towards $0.95/share as: Base (sleep & neuro diagnostic devices & services) deliver reliable growth over next two halves with the dual premium and mid offers, and eHealth moves into growth leverage after the USA backbone build. Blue sky from Step-outs becomes more tangible with new orders of MEG in 2H’20F and a distribution partner for SomFit.
COMPANY BACKGROUND
Compumedics (CMP) is a leading supplier of sleep and neurological diagnostic devices globally, with around 23k units installed and 1,500 units sold annually for $9k to $25k. 15-20% of group sales come from recurring services for existing units. CMP has captured around 30-40% of the premium end of sleep and neurological clinics across Nth America, Europe and China/Japan/Australia. Since 2012 CMP has developed a lower cost solution for sleep/diagnostics with simpler units and an eHealth platform for the smaller testing centres. CMP has also upskilled its neurological devices to move from a software supplier to 100 (of 130) ~A$5m Orion MEG <MagnetoEncephaloGraphy> machines to a supplier of the full device with Korean Partner (KRISS). The first Orion MEG was installed in reference Barrow Institute in Arizona USA in 2019. CMP will take a simple sleep diagnostic device (SomFit) to the retail market, and would prefer to do with a consumer goods partner.
KEY DRIVERS
·Sleep and neuro diagnostic growth in clinics (hardware & software) and smaller centres (amplifier & cloud)
·Brain wave diagnostics for autism, dementia & other neurological conditions require a 10x faster and more accurate MRI which is a new machine (MEG MagnetoEncephaloGraphy)
·Consumer sleep testing with simplified sensor (SomFit)
MILESTONES
·FY’20F - US Adventist Health hospital orders and boost to low cost diagnostic sales
·FY’20F MEG – FDA approval and two new orders in 2H
·FY’20F SomFit – Distribution partner by 4Q
·FY’22F: $20m EBITDA