Pac Partners 80 cent target

	Column 1	Column 2	Column 3	Column 4	Column 5
0	COMPANY Compumedics Limited	CMP	$0.50/share	MCap $83m[/P]	Date: 26 August 2016
1	RECOMMENDATION Buy	High Risk	$0.80/share target[/P]
2	EVENT - FY16 Result – Accelerating step-out growth
3	KEY POINTS
4	· FY16 EBITDA growth of 22% is very strong, especially with 16% of sales are spent on R&D step-out growth · Base sleep and neuro diagnostic platform is growing EBITDA at 15% for 3 years - FY17 to FY19. · CMP is accelerating MEG and eHealth step-out growth, with key sales commitments in next four months. · CMP is transforming its premium niche global diagnostic platform into a required partner for clinics, home, health funds and governments. PT is $0.80/share ( EV/EBITDA of 14x). We reiterate our Buy.
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6	FY17F METRICS PER 14.1x	EV/EBITDA 8.7x	Yield 0.0%[/P]
7	LINK TO FINANCIAL SUMMARY see below or RN_CMP_260816 NEXT UPDATES – Presentations @ PAC Partners offices. Exec Chair David Burton, CFO David Lawson 13 September – Sydney – L9, 56 Pitt Street 15 September – Melbourne – L10, 330 Collins Street
8	DETAIL
9	Event: 1 FY16 Result: · Sales + 12% to $37.5m vs PAC at $37.6m – in-line · EBITDA +22% to $5.0m vs PAC at $5.5m o Difference is R&D expense o CMP spent $5.8m (15.5% of revenue) on R&D vs our $5.1m. · NPAT + 66% to $3.3m vs PAC at $3.1m – 6% ahead of estimate, and at high side of guidance · DPS no dividend declared · Operating Cash Flow steady at $2.2m vs PAC stepping up $2m to $4.2m · At least $0.7m explained by R&D expense · The other $1.3m was build-up of inventory with launch of new low cost diagnostic devices · Order book for these new launches is strong, so we believe this cash flow issue is manageable. · Net Cash $0.5m 2 FY17 Sales guidance at 9-15% growth vs our 14% · EBITDA guidance $6.0m to $8.0m looks conservative, and we stay at $8.5m 3 Reiterate step-out growth possible from MEG and eHealth · First “sales commitment” for MEG neuroscan due by 2HCY16…Price ~$4m…not in FY17 forecast of CMP or PAC Partners · eHealth…already have $3.3m sales/annum into China and a new $3.5m contract signed with another Chinese partner earlier this month Impact: CMP platform of sleep and neuro diagnostic devices and consumable are growing EBITDA at double digit (ave 15% for three years): Consistently growing sales at double digit levels after GFC impact in FY11-13: FY11 -5%, FY12 -10%, FY13 -3%, FY14 +14%, FY15 +9%, FY16 + 12%, FY17F + 13%, FY18F 21%; Expanding EBITDA margins with lower cost base and benefits of improved distribution and scale: FY12 -0.6%, FY13 1.3%, FY14 9.6%, FY15 12.2%, FY16 14.6%, FY17F 19.8%, FY18F 23.4%; We believe growth and margin will keep improving because mid-priced point devices (such as Grael) have only just started to be shipped to customers (i.e. benefits to date are from better distribution and cost base of premium devices only) and CMP has an improved distribution platform in USA, China and Europe. CMP can accelerate sales and margin expansion with MEG and eHealth step-out growth…we have growth coming in FY19 and EBITDA up 45%pa…CMP has solid steps in train for FY17 boost…two years earlier MEG (fast brain imaging for Alzheimer’s, Parkinson’s, epilepsy and autism) received major boost with Korean equipment partner KRISS in Feb’16, and now CMP has at least six customers negotiating terms for purchase of these $4m+ machines; and, Today CMP highlighted that the first sales commitment will be signed in 2HCY16 – ie next four months. eHealth (taking clinic grade sleep tests to the home and small sleep laboratory) had first sales announced last year ($3.3m/a supply to China for three years), and is now negotiating with multiple distribution channel providers as well as rolling out low cost eCloud network (for all CMP devices) Last month CMP added another Chinese distributor with $3.5m sales (over say 2 years)
10	INVESTMENT OVERVIEW
11	· CMP is transforming its premium niche global diagnostic platform into a required partner for clinics, home, health funds and governments. · PT is $0.80/share ( EV/EBITDA of 14x). We reiterate our Buy.
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13	Should you have any queries, please do not hesitate to contact me on +61 3 8633 9864.
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15	Paul JenszDirector Industrials AnalystPAC Partners Level 10, 330 Collins Street Melbourne VIC 3000Phone: +61 3 8633 9864Mobile: +61 410 650 909www.pacpartners.com.au
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17	Recommendation CriteriaInvestment ViewPAC Partners Investment View is based on an absolute 1-year total return equal to capital appreciation plus yield.A Speculative recommendation is when a company has limited experience from which to derive a fundamental investment view.Risk Rating PAC Partners has a four tier Risk Rating System consisting of: Very High, High, Medium and Low. The Risk Rating is a subjective rating based on: Management Track Record, Forecasting Risk, Industry Risk and Financial Risk including cash flow analysis. Disclosure of Economic Interests The views expressed in this research report accurately reflect the personal views of Paul Jensz about the subject issuer and its securities. No part of the analyst's compensation was, is or will be directly or indirectly related to any recommendation or view expressed in this report. 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