Last week one of my largest long term shareholdings, Pro Medicus (ASX: PME) held its 2022 AGM. Each year the company seems to include some new content in the AGM that helps to explain the business to shareholders. This year the main new information was to include quite a few testimonials from top radiologists who use Pro Medicus software day to day.
You can see the (longer) set of testimonials in this video, but I’d also like to highlight some of the quotes from the excerpt played at the AGM.
The quotes below came from clients who came up, ad-hoc, to the company, at a recent event for radiologists.
Testimonials From Radiologists Who Use Visage by Pro Medicus
Marc Kohli, MD, Professor of Radiology and Biomedical Imaging, Medical Director of Imaging Informatics for UCSF Health, described the speed of the process thusly; “it just sparks joy every time it happens almost instantly.”
Mariam Aboian, MD/PhD. Assistant Professor, Nuclear Medicine and Neuroradiology, at Yale School of Medicine said “…having a platform where you just have everything available to you in PACS is incredibly valuable.”
Chris Roth, MD, Neuroradiologist, Vice Chairman of Health Information Technology and Clinical Informatics for Duke Radiology said, “I feel like I just came out of the stone age, because I’m using a system that just works. It has been terrific to work with Visage in that way.”
Tarik K. Alkasab, Ph.D., M.D., Assistant Professor of Radiology at Massachusetts General Hospital said, “The change in the experience from using our prior system to using the Visage tool is really a generational experience, it’s just a leap forward, it’s almost like using a completely different kind of tool than we had been using, and it’s a big pleasure for our radiologists.”
Pro Medicus Competition
One of the other features of the FY 2022 Pro Medicus AGM was that we heard a little more about the competition than usual, in response to shareholder questions. Interestingly, the Pro Medicus CEO Sam Hupert said words along the lines of:
“We believe the software we have is unique… many years ago I felt we were 18 – 24 months ahead but we’ve been saying that for years and we don’t know anyone who has caught up to where we were back then.”
However, on the downside, Pro Medicus did lose a couple of contracts it tendered for this year. One “very small” one, they felt was to do with competition between hospitals. Pro Medicus was left with the impression that the potential client believed they would receive inferior attention from Pro Medicus because they were a nearby competitor to an existing client in Boston. The second one, of medium/small size, “fell over in legal”, which is a new reason to lose, and has never happened before. They had demands Dr Hupert was not prepared to sign off on. No large contracts were lost from the pipeline. Clearly, as a shareholder, I am content for Sam Hupert to refuse unreasonable demands.
The normal reason for Pro Medicus to lose a contract is because of price. For example major competitor Intellerad sells at “a third of the cost” of Visage.
Source Of Pro Medicus Competitive Advantage
One thing to keep in mind about Pro Medicus is that its original source of competitive advantage arises from the software development team located in Germany. As a result, I asked the CEO if the company lost any employees in particular from the development team in Germany. The CEO answered, “That’s easy, no.” It is good to hear that the development team remains in place, as churn in this team is a risk to the company.
Size of Market For Visage Software
One of the limitations for Pro Medicus is that only the private hospitals willing to pay a higher price for greater efficiency are true potential customers. To quote the CEO, “We tend not to bid for public hospital work… the RFPs are so onerous so we see little return.”
That said, the move to cloud hosted PACS is increasing the number of deals Pro Medicus can bid for, because it means that Pro Medicus products can provide a satisfactory return on investment for smaller clients than before. The CEO says “the pie is just bigger than we thought.”
Conclusion From The 2022 Pro Medicus AGM
Unsurprisingly, the 2022 Pro Medicus AGM did not really change my thesis for holding the stock. However, the AGM did underline how well the company is positioned competitively. That makes me optimistic as a holder. On the downside, the share price does seem to fully reflect the company’s strong prospects, and my desired buy price is quite a lot lower than the current share price. I continue to hold shares in the business due to the potential that I am underestimating the valuation of the company (though I have also taken plenty of profits).
Of course, Pro Medicus remains on my list of high quality stocks that I would like to buy if they reach my target buying range during a sell off.
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