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COMPANY Compumedics Limited
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CMP |
$0.70/share |
MCap $124m[/P] |
Date: 31 May 2018
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RECOMMENDATION Buy
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High Risk |
$1.90/share target (Previously –Buy |
$0.92/share target)[/P] |
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EVENT Validation of step-out growth
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KEY POINTS
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- JV with Chinese health check platform (“Health 100”) validates CMP’s emerging consumer sleep application (“Somfit”) and sets up CMP as global sleep & neuro leader.
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- Health 100 is a perfect fit for CMP with 30m/annum health checks, a commitment to build sleep/neuro platform, and order for 1m Somfit units (US$100m) over two years.
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- We estimate CMP receives $9m EBITDA in FY’20 and lifts group EBITDA by 30%. More significant is the validation of both step out technologies (Somfit and MEG) which should transform FY’17A EBITDA from $4m to $32m by FY’20.
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- Health 100/CMP JV is targeted to be complete by 16 Aug.
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FY19F METRICS PER 7.8x
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EV/EBITDA 5.4x |
Yield 3.2%[/P] |
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LINK TO REPORT RR_CMP_310518
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Validation - Today Health 100 with Somfit, Jun’17 US BNI with MEG
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The simple mechanics of consumer SomFit.
· It is a simple patent protected wrist watch with half of the 12 channels CMP uses in its hospital based diagnostic unit.
· This watch is stuck on your forehead with a sensor pad.
· You can then sleep in your own bed and download your effective sleep to a smart phone.
· If there is an issue you send data via cloud for a “paid for” analysis.
· You can keep your doctor in the loop for treatment and do more testing, possible in a clinic.
Our assumed steps with “Health 100” JV (PJV) are:
· CFDA approval for Somfit within 8 months because Health 100 has a track record and CMP is the leader in diagnostics.
· Somfit units and consumables (sensors) are made by the JV in China with option to export globally at CMP’s discretion. Capital Cost of A$42m to JV and rest paid by supplier.
· 1m Somfit units sold into “Health 100” clinics over two yrs at US$100 each with 20% EBITDA margin (2H’19F 0.1m, 1H’20F 0.3m, 2H’20F 0.3m, 1H’21F 0.3m and 0.6m for each subsequent year.) Consumables include sensors and extra analysis make and 20% extra EBITDA over the unit sales.
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INVESTMENT OVERVIEW
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This JV with Chinese health check platform (“Health 100”) validates CMP’s emerging consumer sleep application (“Somfit”) and sets up CMP as global sleep & neuro leader.
We double our 12 Month Price Target to $1.90/share with long term cash flow from Chinese JV underpinning the lift and FY’20 EBITDA of 10x. The combined validation of China with Somfit and USA with MEG give greater certainty to FY’20 EBITDA of $32m and make CMP a Buy.
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RISKS.
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· Formalisation of Health 100 JV by 16 August.
· Core Business Slippage - CMP and main neuro/sleep competitor Natus have both had slippage with sales into USA. CMP is confident its midmarket product is better than peers.
· MEG sales - CMP has four buyers progressed and another 30 non-Chinese and 30 Chinese in pipeline. The first sale was impressive because CMP won key US neuro reference centre (BNI) vs. incumbent Elekta, but it took 18 months. We now have cash from the second MEG coming in during FY'19F. We assume 18 month sale cycle vs. six month aim.
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Should you have any queries, please do not hesitate to contact me on +61 3 8633 9864.
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Paul JenszExecutive Director - ResearchPAC Partners
Level 10, 330 Collins Street Melbourne VIC 3000Phone: +61 3 8633 9864www.pacpartners.com.au
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(20min delay)