The Pro Medicus Ltd (ASX: PME) share price has been a strong performer over the last year, rising by 135%.
There are a few different reasons why this business could be a good one to hold for the long-term.
What is Pro Medicus?
If readers haven’t heard of Pro Medicus before, it describes itself as a leading medical imaging IT provider which was founded in 1983. The company provides a full range of radiology IT software and services to hospitals, imaging centres and healthcare groups around the world.
The company boasts that it offers one of the most comprehensive end-to-end offerings in radiology. It has offices in Melbourne, Berlin and San Diego.
That’s what the company does. These are some important reasons why investors may want to hold Pro Medicus in their portfolio:
Strong profit margins
Pro Medicus may be one of the most profitable businesses on the ASX when it comes to its profit margins.
The healthcare technology business recently reported its FY21 result which showed a sizeable amount of revenue growth at very high profit margins.
It generated a total of $67.9 million of revenue – an increase of 19.5% year on year. With that, the business saw underlying profit before tax growth of 41% to $42.6 million. Net profit rose 33.7% to $30.9 million. The net profit can be a key driver of the Pro Medicus share price.
Pro Medicus said that it had an earnings before interest and tax (EBIT) margin of 63.2% for the year. The net profit after tax margin works out to be 45.4%.
The higher the profit margins, the more of the new revenue that Pro Medicus can turn into net profit.
Major partnerships, client wins and business progress
Pro Medicus has won announced a number of positive agreements over the last year or so.
There have been some large wins in both Europe and the US. For example, it won a 7-year deal with Intermountain Healthcare, the largest health system in Utah, worth $40 million.
Another example would be the $31 million, 7-year deal with the University of California (including all five academic campuses).
It has signed research collaboration agreements with NYU Langone Health and Mayo Clinic, which Pro Medicus said were two of the most prestigious academic healthcare institutions in North America. Those agreements were signed to provide a framework for collaboration to facilitate development and commercialisation in the field of AI, utilising the Pro Medicus Visage AI Accelerator platform.
Balance sheet and dividends
At the current Pro Medicus share price, its dividend only amounts to a fully franked dividend yield of 0.25%.
However, longer-term shareholders are benefiting from compounding growth of its dividend. It declared a final dividend of 8 cents per share, bringing the total for the year to 15 cents per share. That full year dividend was an increase of 25% compared to FY20. Shareholders are getting growing cash returns each year.
Pro Medicus’ balance sheet remains in a position of strength, it remains debt free. Its cash and other financial assets increased by 42.4% to $61.8 million. Management can use this cash for a variety of purposes like paying dividends, investing for organic growth or potentially making acquisitions.