Profound Medical Corp (Profound Medical Corp Stock Quote, Chart, News TSX:PRN) takes top honours from Raymond James analyst Rahul Sarugaser who in a Monday update to clients upped his rating from “Outperform 2” to “Strong Buy” while raising his price target from $35.00 to $45.00 for PRN.
Toronto-based Profound Medical’s TULSA-PRO technology, which is designed for the ablation of prostate tissue, combines real-time MRI with transurethral robotically-driven therapeutic ultrasound and closed-loop thermal feedback control. Last fall, the TULSA-PRO was given 510(k) marketing authorization in the US and Profound has started its marketing of the product.
On Monday, Profound announced the closing of its previously-announced equity offering of 3.4 million shares at $15.14 per share for net proceeds of C48.3 million. The injection puts PRN’s cash position at roughly $71.6 million, says Sarugaser, enough to call it the company’s last equity raise needed to fully commercialize the TULSA-PRO.
Sarugaser likes Profound’s move from a capital equipment sales model to a pure-play recurring revenue model, where the company will charge a pay-per-use fee with no installation costs. The analyst figures the model will reach a steady state COGS margin of 30 per cent by 2023, with Sarugaser projecting installations of ten, 22 and 38 units in years 2020, 2021 and 2022, respectively.
“These units, we estimate, will have average utilization rates increasing from 74, to 90, to 106 annual patients per device during those same years, driving revenues of $11.1 million, $27.2 million, and $63.4 million, respectively. Given that we anticipate PRN generating $5.4 million in 2019FY, we recognize that $11.1 million in 2020 appears relatively modest. These light 2020 revenues we see as a function of PRN substituting short-term capital equipment revenue with massive, long-term recurring revenue. We view this as a deft strategy enacted by PRN’s veteran management,” Sarugaser wrote.
The analyst warns that while PRN’s share price could have less upside over the shorter term, for investors looking at the long-term Profound “represents an extremely attractive investment proposition” and thus gets Sarugaser’s “2020 Best Pick” status.
In particular, Saruagser has high praise for Profound’s management, saying
“We remind you that PRN’s CEO, Dr. Arun Menawat, and CFO, Mr. Aaron Davidson, previously worked together at Novadaq technologies, growing the company from a small, Toronto-based start-up to a billion dollar Nasdaq-listed company, which was eventually sold to Stryker for 20x sales (US $700 million). This seasoned management team, indeed, has been there, done that. We have deep confidence in management’s capacity to execute the deft plan they have set out for PRN. For all these reasons, we have selected PRN as our 2020 Best Pick,” Sarugaser says.
The analyst sees PRN registering $11 million in revenue in fiscal 2020 and an EBITDA loss of $23 million. At the time of publication, his new $45.00 target represented a projected 12-month return of 182 per cent. PRN finished 2019 up 168 per cent for the year.