Quarterly report shows underlying strength
Volpara Health Technologies (VHT) released its 2QFY19 cashflow which was solid with 15 new SaaS customers signed up – bringing the total to 100 customers. The 2Q is typically a softer period due to the US summer, however the annual recurring revenue (ARR) continued to grow (up 6% on the previous quarter to NZ$4.8m) and total contract value (TCV) added was NZ$2.0m. Management noted the 3Q has started well with TCV of US$1.1m added during October and ARR now sits at NZ$5.1m. Net cash receipts were NZ$1.7m, net cash outflow was NZ$2.4m and cash reserves were NZ$20.2m.
FY19 guidance reconfirmed
Management reconfirmed its FY19 guidance of NZ$9.0m in ARR, which represents 9% of the women screened in the US (currently sitting at 5.6%). This is a key milestone we had been focusing on.
Although we have made no changes to our forecasts for FY19/20/21, we have moved our forecasts higher in FY22 (+11.9%) and in FY23 (+10.9%) after revising our price per screen assumption to US$4.00 from US$3.50. We anticipate that additional features will enable higher fees to be charged.
What caught our eye
There were a number of achievements that we see as potential value drivers:
- Sales into Japan (three capital sales made, now 16 systems deployed) are gaining traction with VHT looking to sign up an original equipment manufacturer to accelerate sales.
- A recent announcement from the FDA Commissioner noted a forthcoming update to the FDA mandatory regulations for breast cancer screening that will include breast density reporting.
- The signing of the first public screening provider (BreastScreen Central, New Zealand) is likely to be the first of a number of other state/country based programs – trials are underway in the Netherlands, Norway, the UK and some Australian states.
We have revised up our longer term forecast and revised down our Weighted Average Cost of Capital (WACC) to 11.76% (from 13.04%). As a result we have increased our DCF valuation and share price target (Morgans clients can login to view).
The key risk to our target price is a slower-than-expected take-up of VolparaEnterprise™ due to internal clinic budgetary constraints. VHT is one of our top picks in the sector and we retain our Add recommendation.
Morgans clients can login to view our detailed report and upgraded share price target for Volpara Health Technologies (VHT). Alternatively, please contact your nearest Morgans office for access.
Disclaimer(s): Morgans Corporate Limited was a Joint Lead Manager to the placement and share purchase plan for Volpara Limited and received fees in this regard.
Analyst owns shares.
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