Compumedics Limited [ASX:CMP]
Healthcare & Biotechnology
A Global MedTech Leader Transforming Sleep & Brain Health
We initiate coverage on Compumedics Ltd. (ASX: CMP) with a fair valuation of A$0.67, representing a 108% potential upside from the latest share price of A$0.32. Compumedics develops and sells advanced diagnostic and monitoring devices for sleep and neurological disorders, as well as pioneering brain research and ultrasonic assessment of cerebral blood flow. The company has been in existence since 1987 and has a well-established global sales and distribution network. With recent FDA clearance for its next-generation Home Sleep Tests (HST) Somfit™ and Falcon™, Compumedics is now entering the large and rapidly growing US HST market, potentially transforming its revenue and earnings trajectory.
Large And Growing Market Opportunities for Compumedics’ Products
In 2023, the combined market for neurology and sleep diagnosis was valued at 15.5 billion USD and is projected to reach nearly 40 billion USD by 2032, presenting a lucrative opportunity for Compumedics' comprehensive suite of innovative diagnostic products. The neurology diagnostics market is expanding due to rising neurological disorders, technological advancements, and demand for minimally invasive procedures. The sleep diagnostics market is also growing, driven by the increasing number of sleep disorders, reimbursement availability, and advances in wearable and telemedicine services.
Compumedics’ revenues are set for rapid expansion
Targeting the US HST market, estimated at two million studies per year, Somfit™ represents a potential new addressable market of up to 4 million tests per year and USD 120-200 million annually in SaaS revenues. With FDA clearance, Somfit™ offers a competitive advantage with its scalable, clinical-grade, and convenient at-home monitoring. Compumedics' initial focus on Australia has paved the way for rapid expansion of Somfit™ into other markets, including the US. Additionally, the Falcon™ HST device, recently FDA-cleared, complements Somfit™ with more advanced capabilities, catering to more demanding sleep practice requirements. The Falcon™ has already gained traction in Australia, indicating promising sales prospects in the larger US market. Moreover, the commercial success of Compumedics’ Orion MEG is now more likely than ever with the successful installation at China’s prestigious Tianjin Normal University, providing validation from a strong key opinion leader in the field.
Valuation range of A$0.50–0.83 per share
We have used a DCF methodology to value Compumedics at A$0.50 per share in a basecase scenario and A$0.83 per share in a bull-case scenario using revenue and cost assumptions largely based on the company’s historical results. While several factors could potentially drive a re-rating of Compumedics' share price, we believe the most significant catalyst will be a rapid increase in sales and profitability of Somfit™ and Falcon™ HSTs in the US market. Key risks to our investment thesis include Competition risk, market adoption risk, regulatory risk, and timing risk.