Interesting little company, this. When you read the prospectus...

Interesting little company, this.

When you read the prospectus and the various presentations and announcements (and yes, I know, for an early-stage company such as this the company-generated literature is - by definition - always going to be highly promotional in nature and will always present the prospects of the company in only the most favourable light with all kinds of "blue sky" potential on offer) it seems that this has the makings of a company that has potential to be valued in the hundreds of millions of dollars.

Instead, it's market cap is just $22m.  

While the revenue model is still, in my mind, being proven, the company seems to have a service offering for which there is a real need, namely addressing waste and inefficiency in health care systems.

Whether the product that PKS offers actually works and adds value is something of which I'm not 100% sure, because I have no experience with Clinical Decision Support software, but that the company has secured some high-profile customers and channel partners suggests to this lay observer that there is something that is real here (or, at worst, potentially real).

The company's reason for existence is summarised in the following slide:



That it is profitable (well, on pro forma numbers, that is...it reported FY2019 pro forma EBIT of $2.0m on Revenue of $3.9m, 85% being recurring) also says something. As does the fact that the company has $4m of net cash, so looks to be adequately funded for growth.

But being an early stage business, it still has a high degree of customer concentration (it currently has its products installed in around 100 sites globally, servicing just 15 customers at this stage. It's largest customer represented >25% of FY2019 revenue and the top-5 customers accounted for more than 65% of revenue).

Also, I have not conducted any real study on the competitive landscape for this kind of offering: I am sure PKS is not the only company in the world trying to introduce this kind of technology..I am sure there are literally hundreds of others trying to do similar sorts of things.

So while it is still early days, and the product (named, strangely, "Ripple Down") is not yet very widely credentialised, it is a business model that is almost infinitely scale-able, and at limited capital cost, so if they manage to only get it half right in terms of traction with customers, the Revenue line will fly.
(Of course, to get Revenue to take off to begin with will require an investment in sales and marketing, as well as customer on-boarding and training which all costs money... and part of the capital raised during the IPO was for investing in this very expenditure.)

The company is backed by what seem to be some savvy venture capitalists, who have been adding to their shareholdings in the company since its IPO.

This is not a typical investment that I like to make but - being emboldened by some recent investing success with a company that I sensed was at a similar point in its corporate evolution - I have been acquiring shares in PKS in recent days.

My thinking is that, sure, it could all be a damp squib, but there seems to be some traction in the business and - as I expressed earlier - the revenue opportunity looks to be very large so if the company's management is able to execute in just a moderately successful manner, my sense is that the company could easily be valued in the several hundreds of millions of dollars.

As opposed to a mere $22m.


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