Shares in Mach7 Technologies Ltd (ASX: M7T) are trading well down on their highs over the past 12 months, but the good news is that, according to Morgans, there's plenty of share price upside to be had.
Morgans recently issued a research note to their clients with a buy recommendation on the stock and a bullish share price target, which we'll get to later.
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Weaker revenue forecast
The research focused on the company's recent quarterly report, which was released just last week.
The ASX small-cap healthcare software company said in the report that it had generated positive operating cash flow during its third quarter to the tune of $1.2 million.
The company's annual recurring revenue rate was sitting at $22.8 million at March 31, up 2% in constant currency terms versus the rate at the end of December, and the company had $19.2 million in cash and no debt.
Regarding the result, Mach7 Managing Director Teri Thomas said:
FY26 is an operational reset year, with clear progress in cost control, partnership development, pipeline quality and delivery. Our Q3 result reflects that shift with significantly lower operating activity payments and positive operating cash flow…Over the past six months, we have strengthened the business fundamentals, aligning our product roadmap to AI-driven imaging workflows, expanding our partner ecosystem, and accelerating the shift toward higher-quality, recurring revenue. This is driving a more predictable revenue base and a higher-quality pipeline.
But Ms Thomas said the company expected full year revenue to be about 15% below FY25, "due to reduced services revenue and delays in capital deal conversion in the Middle East''.
She added:
This is partially offset by an expected ~10% reduction in operating expenses, reflecting efficiencies delivered across the business. We have reset the business, improved cost control and are now positioned for growth as we build the imaging data layer for AI-driven healthcare.
Shares looking cheap despite uncertainty
Morgans said in its research note that the optics around the downgrade were not positive, "but also not surprising given the geopolitical tensions in the area likely pushed these decisions''.
The broker added:
The revenue downgrade is a timing rather than demand issue, but the distinction only matters if deals convert. Confidence in the Middle East pipeline is noted, but this is the second consecutive period where capital deal conversion has disappointed. Until deals land in numbers, the market will likely continue to discount the pipeline. By no means an unfair position given the macro and geopolitical backdrop.
Morgans said on the positive side of the equation, a lower operating cost base sets the company up well for better operating leverage from FY27.
Morgans has a price target of 44 cents on Mach7 shares, compared with the current price of 27.5 cents.
The company is currently valued at $65.8 million.
