Pro Medicus share price fails to fly on 44% profit leap

Here's how Pro Medicus dialled up the profits in FY22.

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Key points

  • The Pro Medicus share price is inching 0.5% higher to $54.04 today
  • Profits increased a sizeable 44% year over year to $44.4 million
  • CEO Dr Sam Hupert hinted at a strong pipeline and potential for future acquisitions

The Pro Medicus Limited (ASX: PME) share price is splashing about to little avail on Thursday as investors react to the company's full-year results for FY22.

Around midday, shares in the medical imaging software provider are sporting a slight 0.5% increase. The Pro Medicus share price is now $54.04. For context, the S&P/ASX 200 Index (ASX: XJO) is down 0.22%.

Pro Medicus share price staggers on solid result

Key highlights in the report are as follows:

  • Revenue up 37.7% year over year to $93.5 million
  • Earnings before interest and tax (EBIT) margin of 67.5%, up from 63%
  • Net profit after tax (NPAT) up 44.1% to $44.4 million
  • Fully franked final dividend of 12 cents per share declared
  • Total dividends for FY22 up 47% to 22 cents per share fully franked
  • Cash and other financial assets increased 47% to $90.6 million.

ASX investors are largely unamused by the news released by Pro Medicus today. Despite the results representing another record for revenue and profits, shares are staggering above and below yesterday's closing price.

What else happened in FY22?

It was a busy financial year for the team at Pro Medicus in FY22. The 12-month period consisted of a mix between new deal signings and significant contract renewals.

Noteworthy new deals involved prominent healthcare providers including Novant Health, Inova Health, and Allina Health. All three of these contracts with the United States-based operators were for seven or eight years. The combined value over the life of the initial agreements amounts to $100 million.

Meanwhile, key renewals during the reporting period included those with Sutter Health and Wellspan. Pleasingly, the agreed term was for an additional five years at a combined value of $47 million.

Moreover, Pro Medicus landed its fourth extension for the provision of its Visage 7.0 platform to the German Government.

What did management say?

Commenting on the results, Pro Medicus CEO Dr Sam Hupert said:

FY22 year was another year where all our key financial metrics headed in the right direction and we continued to make significant progress with key implementations. All three jurisdictions did very well. North America – our biggest market – was the key contributor, with a 65% jump in transaction revenue coupled with three new material contracts and two contract renewals.

Additionally, Hupert highlighted that revenue from recent contract wins — such as Novant, Inova, and Allina Health — will begin in FY23.

What's next?

Becoming a somewhat common theme this earnings season, Pro Medicus did not provide any forward guidance. Although, Dr Hupert did note that the company's contract pipeline remains 'strong'.

The CEO also noted that interest from the for-profit sector has picked up again after dropping off from COVID-19 impacts.

Finally, management pointed out the possibility of future merger and acquisition opportunities amid compressed company valuations. Namely, potential in artificial intelligence (AI) startups that are pre-revenue and not profitable.

With more than $90 million of financial fodder on its balance sheet, Pro Medicus would be primed for any such activity.

Pro Medicus share price snapshot

As with most premium-valued companies, 2022 has been relatively unkind to the Pro Medicus share price. The shares have fallen around 14% since the beginning of the year. Whereas, the S&P/ASX 200 Health Care Index (ASX: XHJ) has only tip-toed 4.4% lower.

Lastly, despite the sizeable boost in earnings, Pro Medicus still trades on a price-to-earnings (P/E) ratio of approximately 127 times. For comparison, the average for the global healthcare services industry is 40.6 times.

Motley Fool contributor Mitchell Lawler has positions in Pro Medicus Ltd. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Pro Medicus Ltd. The Motley Fool Australia has positions in and has recommended Pro Medicus Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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