HeraMED [ASX: HMD]
Healthcare Equipment and Services
A Scalable Digital Health Platform for Pregnancy and Postpartum Care
We initiate coverage on HeraMED (ASX: HMD) with a target price of A$0.11, representing a 149% upside from its current price of A$0.04. HeraMED is an innovative healthcare software company, specialising in women's health and on the path to revolutionise the traditional maternity model of care. The company focuses on remote pregnancy monitoring applications and has expanded its offering to include postpartum care. It has built a state-of-the-art software application (HeraCARE) that enables doctors to communicate directly with their patients remotely and monitor their vital signs daily during pregnancy. Apart from the software, the company also produces a hardware device (HeraBEAT) which utilises advanced technology to monitor fetal and maternal heartbeat from the comfort of the patient’s home. Overall, the company provides a comprehensive solution to strained healthcare systems, saving time and costs and making pregnancies safer for all by enabling early detection and intervention, especially in high-risk pregnancies.
Near-term Revenue Opportunity in the US Market
HeraMED has entered into two commercial agreements in the US: with Lee Health and with Philips as counterparties, both of which are expected to drive revenue growth beginning this year. The Lee Health agreement provides direct access to an established hospital system in South Florida, which sees up to 8,000 pregnancies annually. Similarly, the Philips agreement provides HeraMED with significant exposure to the US market, as Philips currently serves 90% of the hospitals in the country. Although the current agreement is in its pre-revenue stage, the probability of a commercial ramp is extremely likely given Philips’ vast footprint in the US market and HeraCARE’s unique, differentiated patented technology.
Pivot to SaaS Business Model Enabling Higher Margin Potential
The company has shifted its strategy to focus on its software-as-a-service (SaaS) offering and incorporate HeraCARE into the healthcare systems of the US and Australia. By transitioning to a dedicated SaaS model in the healthcare sector, the company could differentiate itself and unlock higher-margin potential. By impairing all development costs related to HeraBEAT and pursuing commercial agreements that primarily concentrate on HeraCARE, the company may achieve profitability quickly while still delivering a comprehensive end-to-end solution for maternity care. The software itself is feature-rich and integrated with artificial intelligence (AI) and electronic health records, offering a clear value proposition for potential clients.
Valuation Underpinned by Conservative Assumptions
Based on HeraMED potentially generating positive free cash flow as early as 2027, we valued the company using a five-year discounted cash flow (DCF) model. Our conservative valuation approach does not consider potential revenue from postpartum care and revenue related to past commercial agreements in Australia, utilises a low terminal growth rate compared to the expected market growth rate, and uses an industry average beta, adjusting for the company’s capital structure as opposed to using the extremely low 3-year beta of the company. Incorporating these key factors resulted in a base case target price of A$0.10, reflecting a potential upside of 127%. Our bull case assumptions resulted in a target price of A$0.12, implying a potential upside of 170%.