Pro Medicus pain alert
There is more soreness ahead for Australian investors who avoid the US radiology juggernaut.
For Australian active fund managers there are few stocks more painful than the one that soars in value from less than $100 million to $32 billion, and a place in the ASX 50 leaders, while you don't own a single share. That stock is, of course, Pro Medicus (ASX: PME).
The vast majority of non-index Australian equities managers don't own and have never owned PME shares. And for those that don't own it, it's really starting to hurt. It's hard to beat the ASX 200 Accumulation Index – the yardstick against which most funds measure performance – when you don't own the fastest-rising component of that index.[[Fund managers that have disclosed more than token PME holdings in recent quarterly updates are Mark Arnold and Jason Orthman at Hyperion Asset Management, Don Buchanan and Nick Thomson at Lakehouse Capital and Prasad Patkar at Platypus Asset Management. As most fundies rarely disclose more than their top five holdings in quarterly updates, there might be several others who own more than 50,000 shares. The PME register shows 38 per cent of the stock is held by nominees that normally front institutional holdings, but the beneficial holders behind the nominees are invisible unless their shareholding is greater than 5 per cent of the company.]]
Unfortunately for fund managers, the pain might get worse before it gets better. Pro Medicus' main business, its proprietary Visage radiology software used mostly by North American hospital chains, is on a tear and is not showing any signs of deceleration. Indeed, on some measures, the rate at which PME is winning market share in the US is actually accelerating.
Despite having the most expensive offering, PME is crushing its competitors in the US. In the last five years the company has reported 32 major new contract wins, with guaranteed minimum licence payments of $136 million. The former dominant player in the US, Canada's Intelerad, announced four. A Swedish challenger, Sectra, reported 15 new contract wins in the US but only won them by deep discounting. Despite the contract wins, analysts that cover Sectra have progressively lowered revenue and earnings forecasts over the past 12 months.