Price Target $1.15

COMPANY Compumedics (CMP)	MCAP A$64m	$0.365/share	Date: 2 April 2020
RECOMMENDATION Buy | PT $1.15/share (-18%) | High Risk
EVENT Experience, diversity and cash flow equal Buy
KEY POINTS
· We lower FY’20F Revenue by 19% to $37.3m due to non-Corona-19 health pause across China, USA and Germany/France.
· We assume CMP is successful obtaining $3m of temporary loans from its existing Australian bank and European governments.
· We estimate the FY’21F EBITDA delivers $9.6m vs previous $13m with:
o Normal services start in 4QCY’20 from the installed 23k global sleep and neuro devices;
o 1,500 new devices are sold in FY’21F vs old forecast of 2,000 (with 250 delayed from FY’20, and 750 pushed out later than FY’21;
o Two brain scanner (MEG) sales are started from the four in detailed due diligence, and profitable US eHealth expansion with an increased need for convenient point of care solutions.
· CMP’s has a 20-year global platform with three product ranges delivering EBITDA of ~$3m each, and an even split across Asia/Australia:USA:Europe at 40:30:30. This experience, diversity and cash flow deliver a Buy.
FY’21F METRICS PER 10.4x | EV/EBITDA 6.4x | Yield 0.0%
LINK TO RESEARCH REPORT RN_CMP_200402 (7 pages)
INVESTMENT VIEW
We lower our 12 Month Price Target 18% to $1.15/share to reflect the delay on DCF and FY’21F EV/EBITDA of 20x. We retain our Buy because CMP stays on track for growth with proven comparatives advantages across base and step-outs. Base (sleep & neuro diagnostic devices & services) deliver reliable growth with, wide geographic distribution, premium and basic units, eHealth growth leverage across USA backbone, and consumables. Step-outs becoming more tangible with new orders of MEG in 1HCY’21F with US FDA approval granted in Feb’20, and a distribution partner for SomFit by the end of CY2020 (accelerated with pause off-shore).
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. Feb’20 US FDA approval gives more confidence to six new MEG sales over the next two years, and $7+m/annum EBITDA by FY’23F. CMP is preparing to take a simple sleep diagnostic device (SomFit) to the retail market and would prefer to do with a consumer goods partner. Most focus is on Australian or Asian partnerships, and this can be accelerated with pause in USA and EU due to Covid-19.
KEY DRIVERS
·Brain wave diagnostics for autism, dementia & other neurological conditions require a 10x faster and more accurate MRI which is a new machine (MEG - MagnetoEncephaloGraphy)
·Sleep and neuro diagnostic growth in clinics (hardware & software) and smaller centres (amplifier & cloud)
·Consumer sleep testing in home with simplified sensor (Somfit)
MILESTONES
·MEG FDA approval for dual dewar (child and adult) by 4QCY’20F. CMP received single dewar (adult) in Feb’20. We expect this approval path and success with first MEG at USA (Arizona – BNI) will start two MEG sales during 1HCY’21F. This is a 12-month delay on our pre Covid-19 estimate.
·FY’20F - US Adventist Health hospital orders and boost to low cost diagnostic sales. On track vs pre Covid-19.
·FY’20F SomFit – Distribution partner by 4Q. On track vs pre Covid-19.
·FY’22F: $17.4m EBITDA. Down 13% vs pre Covid-19.