This morning, medical imaging software provider Pro Medicus reported yet another set of record results with revenue up 32% to $213 million and profit after tax up 39% to just over $115 million. This article will focus on the Pro Medicus FY 2025 annual report released today, but check out our prior PME coverage if you are interested in how the investment thesis of a long-term Pro Medicus shareholder has changed over time.
The Pro Medicus share price has gained about 6% to $315, since the results were released this morning. However, this share price is still slightly below the all-time high Pro Medicus share price of $336 that we saw in July.
As you can see below, H2 FY 2025 was a record half for Pro Medicus when it comes to underlying profit, albeit with slightly lower half-on-half growth than the preceding two halves. Earnings per share came in at about $1.10, up 39%. That puts Pro Medicus shares on a P/E ratio of about 286 at the current Pro Medicus share price of about $315.
The half-on-half profit growth was slightly slower in H2 FY 2025 compared to the last couple of halves because H2 FY 2025 saw slower improvement in profit margins compared to H2 FY 2024, and slightly slower half-on-half revenue growth than in those two halves. The good news for Pro Medicus shares is that both underlying profit margins and statutory profit margins reached record levels in H2 FY 2025.
Pro Medicus CEO Sam Hupert said: “We don’t expect that margins will deviate materially from where they are now however with incremental revenue from recently won contracts such as Trinity and UC Health (Colorado) it is not inconceivable that margins could grow further.”
As usual, the growth engine of the business was its US business, where it thinks it has about 10% market share, and where it won a bunch of new contracts during the year. As we noted in our H1 FY 2025 results coverage, Pro Medicus won the whopping $330 million, ten-year contract with Trinity Health in September 2024. It followed up this milestone win with a A$170M, 10-year contract with Colorado-based UCHealth in July 2025 (a few days after the end of financial year).
As you can see below, the revenue from the US grew strongly in the second half, up 21% year on year. This falls within the normal range, but it is nonetheless fair to say that H2 FY 2025 USA revenue growth was slightly better than the first half growth.
Meanwhile, the relatively slow-growing Australian revenue did grow slightly, thanks to, “new additions around the RIS product for not only existing clients, but some new smaller clients.”
The European revenue was up slightly due to currency movements but flat on an underlying basis. The company said, “Market opportunities in Europe have been limited this financial year; however, we anticipate this will change over the next few years.”
Taking a step back, these smaller geographic segments provide evidence that Pro Medicus has world-class products that it can sell anywhere. However, the lack of growth in these segments reflects that it is more expensive to go through the tender process in those jurisdictions, there are fewer deals to be won, and that the contracts on offer are, on average, for smaller hospitals.
Therefore, it makes more sense for Pro Medicus to focus on selling its software to the USA where Pro Medicus software can be used to increase profits by making radiologists more productive, offsetting the high cost of the software with attributable revenue growth. And that is what the company intends to do.
Pro Medicus Stock Sentiment
Market sentiment about Pro Medicus shares seems currently very optimistic with many analysts asking questions on the call and congratulating management. On top of that short-selling interest is relatively low compared to the last few years, and my favourite Pro Medicus contra made no public criticism of the result.
For clarity, I generally find Pro Medicus shares more attractive when short interest is high, compared to when it is low, because high short interest indicates negative market sentiment.
Pro Medicus Cash Flow and Balance Sheet
I calculate Pro Medicus free cash flow by taking operating cashflow of $111 million and subtracting capital expenditure, investment in intangibles and repayment of lease liabilities to get free cash flow of approximately $103 million. That’s an impressive result relative to the $115m NPAT and means that the Pro Medicus balance sheet boasts cash and investments of $210.7 million. The final dividend was increased in line with the profit but provides a negilible yield to shareholders.
The Part Of The FY 2025 Pro Medicus Result I Find Confusing
My main niggle with this report arises from the remuneration report on page 36 of the Annual Report which presents underlying EBIT for the purposes of measuring whether to award the short term incentive bonus. As you can see below it represents underlying EBIT as $152.4m rather than the $157.7m figure that I get by adjusting EBIT for currency and hedging impacts.
I asked the Pro Medicus CFO Clayton Hatch about this in the morning, and he told me that the underlying EBIT used in the Remuneration Report is for STI purposes, and the $157.7m is correct. The footnote on page 36 of the report notes that “Earnings before interest and tax and excluding currency gains/ (losses) and capitalised development cost adjustments. Underlying EBIT is a non-IFRS measure.”
I cannot figure out how the company arrived at $152.4m and am expecting to talk to the CFO about it, at some point. I’ll update this section once I understand this calculation better. I can’t imagine that the answer will have any meaningful impact on my overall view of Pro Medicus. That said, my natural curiosity about the stocks I own means I do want to understand better why the underlying EBIT for remuneration purposes differs from the underlying EBIT published elsewhere by the company.
Update 5.23pm: I now understand that the underlying EBIT number for the purposes of measuring the short-term STI is a hypothetical number reflecting what the profit would be using a fixed exchange rate over the measurement period. Whereas the $157.7m figure merely adjusts for the impact of currency changes and hedges on the cash balance, the $152.4m number assumes a different revenue number backing out the impact of changing exchange rates on revenue. This is reasonable since employees do not have the ability to influence exchange rate impacts on revenue. I appreciate the CFO Clayton Hatch taking the time to explain it to me on what is no doubt a busy day!
Key Takeaways From The FY 2025 Pro Medicus Results
The biggest takeaway from the FY 2025 Pro Medicus results is that the company has had a record year in terms of signing new contracts, with three new Visage customers announced in the first half, including the biggest yet, four new Visage customers announced in the second half, and then the second biggest ever Visage contract announced in early July, right after financial year end. Therefore, I expect FY 2027 to be another strong year, with profit growth in the vicinity of 30%.
On top of that, I was impressed by both the strong cash conversion, and the fact that the company sold its cardiology product as part of its recent UCHealth contract win. At the time the CEO said: “they have also opted for our cardiology offering which will provide UCHealth with a truly unified enterprise imaging solution, a trend we see continuing as more and more healthcare enterprises look to consolidate their disparate imaging systems.”
One risk I am mindful of is that Pro Medicus is probably receiving a fairly high price for its products thanks mainly to lack of comparable competing products, and it already sometimes loses tenders because of its premium pricing. This means that it could lose some pricing power if a competitor ever launches an equally good product, though there is no sign of this happening yet.
When I asked the CEO if the company had lost any contracts from its pipeline to competitors, he said something like:
“Look, we will never have a 100% hit rate. I wish we did. That would be unbelievable bearing in mind that we simply outsell most of our competitors put together. The ones that we — sometimes we lose them early on, they just look at price and you’ve got to be kidding. Having said that, it’s not I’m heard of for those people to come back a few years later. And sometimes people are just look at something and they feel their budget is x. So there will always be some that there were other excluded from fairly early on or people look at price. Sometimes there’s the concept that maybe the opposition that have a broad range of product, which I hope [nobody] believes [is] the case. So we’re all — we’re not going to have 100%. But clearly, our recent hit rate has been the highest we’ve ever had.”
Overall, I thought these results were very good and continue to position Pro Medicus as the highest quality stocks on the ASX. Therefore, despite the fact that the P/E ratio is arguably too optimistic at around 285.
While I did sell a small number of Pro Medicus shares at around current prices just last month, as disclosed at the time, but I will continue to hold the vast majority of my Pro Medicus stock for the foreseeable future.
While I may consider selling some Pro Medicus shares while investor sentiment remains buoyant, I still retain a lot of conviction in Pro Medicus stock. It is currently my second largest ASX holding and since I believe it is the highest quality stock on the ASX, I will be keeping it in my portfolio, as one of my larger holdings.
Having said all that, I do believe that the share price is boosted by the fact that there is a lot ASX investor demand for high quality growth stocks, and relatively few of them to pick from. This means that large superannuation funds and the like are constantly buying more shares in Pro Medicus, resulting in particularly optimistically priced shares. If this phenomenon ever changes it could weigh on the Pro Medicus share price, though I do not see that happening any time soon.
Disclosure: The author of this article owns shares 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 276544).
Addendum Friday Morning: After publishing this article I did a livestream Q&A about Pro Medicus shares on our ASX Small Cap Wrap Youtube Channel. During this livestream I answered questions like “how should I buy Pro Medicus shares if I do not have any?” and discussed the valuation of the company plus at around 42 minutes, I specified what I think was the most important news from this set of results. This for me is not the news that the platform would expand into pathology.
Analysts and fundies are evidently excited to discover that pathology will be added to the platform. However, the company said for many years that it would be expanding into “other ologies” and changing your valuation of the business based on which particular ology is next would imply you as an investor have an ability to judge whether the decision to target cadiology, pathology, dermatology or anaesthesiology first will increase or decrease future profits. So while it is a fun talking point it does not impact my perception of value because I have no ability to judge that kind of operational decision.
To zoom out I think that kind of excitement is just evidence of optimisitic sentiment around what is, in my view, the best quality stock on the ASX.
Subscribe to our Youtube channel and put on alerts to be notified about our next results Q&A session.