Profound Medical Corp (
Profound Medical Corp Stock Quote, Chart, News TSX:PRN)
takes top honors 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.
Profound Medical gets 2020 “Best Pick” honours from Raymond James
