Mach7 Technologies: Building a solid foundation for FY22
About the author:
- Author name:
- By Scott Power
- Job title:
- Senior Analyst
- Date posted:
- 24 August 2021, 7:00 AM
- Sectors Covered:
- Healthcare, Life Sciences
- M7T posted an in-line result for FY21. The highlights included a record sales order book and further R&D spend (28% of revenue) into new product development.
- Pleasingly, FY22 starts with a revenue base of A$23m which will be added to over the balance of the year, making our A$28m forecast comfortably achievable. M7T also expects to be EBITDA positive for FY22.
- We have made immaterial changes to our forecasts which see our DCF based valuation remain at (login to view). The share price has been weak over recent months and we see today’s release as providing confidence to the market that significant revenue growth is ahead in the coming years. Add maintained.
M7T posted a solid FY21 result recording revenue of A$19.0m (in line with MorgansF A$19.5m), the major contract wins included Trinity Healthcare and
Adventist Healthcare. EBITDA pre-share based payments were A$2.6m and post a loss of A$0.7m (MorgansF loss of A$0.5m). M7T expensed A$5.4m in new product development. Net loss was A$9.4m (MorgansF a net loss of A$9.4m) assisted by an income tax benefit of A$2.3m. Net operating cash flow was A$1.4m (pcp: A$4.8m), where management had guided to a positive result. M7T finished with cash reserves of A$18.4m.
Sales orders were the highest on record of A$25.6m (pcp A$13.1m) comprised of 20% subscription base, 72% capital, 8% services only. It was noted that 85% of this order book is yet to be recognised as revenue, setting up a solid base for FY22 and beyond. Contracted annual recurring revenue (CARR) was up 43% to A$15.8m, with ARR at A$13.4m (pcp: A$6.5m).
Pleasingly, FY22 outlook commentary was detailed which included a base revenue of A$23.1m (made up of A$13.4m in ARR + A$6.1m software licenses already sold, A$2.2m in services, A$1.4m new contracts recognised in July). We expect additional contracts to be secured over the balance of FY22 and remain comfortable with our A$28m revenue target. Management also noted that the previously announced revenue target of A$27m for CY21 is on track.
The in-line result is a positive and we note continued R&D spend of A$5.4m to maintain a competitive position in the enterprise imaging market is important. The operating cost base of A$17.5m is expected to edge higher in FY22.
The guidance for FY22 of positive EBITDA and a revenue base of A$23m which can easily grow to our forecast of ~$28m should be well received by the market.
Forecast and valuation update
We have made minimal adjustments to what we now believe is a conservative revenue forecast of A$28.0m (was A$27.7m). As we had already rolled our model forward, our DCF based valuation remains unchanged at (login to view).
We maintain an Add recommendation. The enterprise imaging sector is forecast to grow from A$2.4bn in 2020 to A$2.9bn in 2025 (CAGR of 3.9%) according to Signify Research Imaging IT World 2021 report. We forecast that M7T’s revenue will achieve 19.2% average compound growth from 2020 to 2025.
Following the eUnity acquisition M7T has a full suite of product which is well placed to service and attract new customers (currently has 165 active customers).
Continued contract wins, expansion into new territories and new product development.
The downside risk is delays in securing new contracts due to tight hospital budgets.
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