Today Pro Medicus (ASX: PME) held its 2024 annual general meeting. Although the ASX announcement with the Chairman’s report and presentation was marked market sensitive, there wasn’t any specific guidance given.
However, the Pro Medicus Chairman Mr Peter Kempen did say that, “We anticipate that the second half of the financial year will be stronger than the first half, as is traditionally the case.” He also said that, “The Board anticipates FY25 will be another strong year.”
Meanwhile, the Pro Medicus CEO Dr Sam Hupert said that, “We think about 85% of the market is addressable and we have about 7% of the market, and nobody has gone from 0% to 7% as quickly as we have.” This is important because it supports my argument that, although the Pro Medicus share price is riding high, the business could eventually grow into its valuation. Furthermore, he noted that,“We are seeing increasing numbers of RFPs across all market sizes and types.” This suggests demand remains strong.
For the last few years, each Pro Medicus AGM has had a specific focus to help shareholders understand an aspect of the company better. This year, the company focussed on its high employee retention, with churn during the year sitting at just 2.7%. The CEO repeatedly mentioned other key leaders by name and described with glee how many of their new employees are referred to the company by existing employees. The slide below shows a photo of the two founders of Pro Medicus, Sam Hupert and Anthony Hall (top), and — if I understood correctly — the two founders of Indeed – Visual Concepts GmbH, Malte Westerhoff and Detlev Stalling. Indeed evolved into Visage Imaging, which is owned by Pro Medicus.
The other interesting thing that came out of the AGM was Dr Hupert’s response to a question about AI. I will update this with the exact quote once the transcript is available, but he said words to the effect of:
“We are in the throes of commercialising our breast density product. To be honest, many other things have gotten in the way. But we will get there soon… We already have stuff that we’ve built into the machine that we’re not going to sell separately. We are going to put it into the box; to answer the question of how we keep ahead of competitors, that will do it perfectly.
It’s not a thing you can drag and drop. We are making good progress, but you haven’t seen it because it’s all under the hood. I don’t believe we’ve lost any opportunity in the market. If anything the market is starting to come to us because it takes 2 years to get into a hospital. I think they [radiology artificial intelligence start-ups] are starting to see that, so we are seeing more 3rd parties coming to us.
But again, we have to be very careful to make sure we partner with the right people because it’s our reputation at stake, even if it’s their algorithm.”
This gives us good reason to assume that AI-related revenues could still be some time away. In the meantime, however, the company is getting on with improving the products it already has in market, in order to ensure it continues to grow market share as quickly as possible.
At the end of the day, all this works towards the greater value proposition. To quote the PME CEO Sam Hupert again: “We believe we give back the biggest return on investment, not just financially, but also clinically, and allow clinicians to do things that previously would take too long or they could not do.”
Indeed, the company did share some new testimonials about its product from clinicians. Testimonials are useful evidence of product superiority, so I’ve quoted them below verbatim from slide 24 of the AGM presentation.
“First of all, I want to say you have a great platform. The registration, fusion, and linking to 2 prior studies at once is mind-blowing.”
“I have never been able to visualize vessels like this in a PACS, this is so impressive!” (neuro radiologist)
“Visage has everything! It’s way more powerful than our previous system. It’s almost infinite.”
“For years we have been struggling to determine if a tumor was recurring or not, now we can with Visage.”
The final piece of the zigsaw puzzle that shows what a good business ProMedicus is, is that radiologists are very important (and expensive). If you win over the radiologists, you win over the most influential cog in the system. You see, Sam Hupert explained how years of prognostications that artificial intelligence would make radiologists redundant meant fewer doctors became radiologists and so now, we really need artificial intelligence to help leverage the time and capability of radiologists! He noted that:
“There were 1,400 radiologist positions that were advertised that were yet to be filled… You’ve got more workload, fewer people, and a lot of people post covid looking for change in work life mix, working from home or only working 3-4 days per week.
10 years ago there would be 3 or 4 groups competing for work but now nobody is bidding for new jobs.
We can empirically prove that radiologists using visage are 25% – 30% more efficient. When you think about it that is true. The biggest cost is the radiologist: 1) they are expensive and b) you can’t get them.“
It couldn’t be much plainer that Pro Medicus is the best stock on the ASX. I have been saying this for years, but now nobody argues back anymore. Without many remaining critics, the Pro Medicus share price has become extremely optimistic.
But that doesn’t mean there is anything wrong with the business itself. On average, over the long term, you’re better off owning shares in the best businesses than not owning them, even if the stock might be a bit expensive, as I write this moment. Let us shareholders appreciate the good times, but not forget the wheel of Boethius:
“Rise up on my spokes if you like, but don’t complain when you’re cast back down into the depths. Good times pass away, but then so do the bad.“
Disclosure: The author of this article owns shares in PME and will not trade PME shares for at least 2 days following the publication of this article. This article is not intended to form the basis of an investment decision and is not a recommendation. Any statements that are advice under the law are general advice only. The author has not considered your investment objectives or personal situation. Any advice is authorised by Claude Walker (AR 1297632), Authorised Representative of Ethical Investment Advisers Pty Ltd (ABN 26108175819) (AFSL 343937).