Global Health (GLH) - 2019 update

The first and last time we wrote about hospital and medical centre practice management software company GLH was way back in 2014.  Things haven’t exactly worked out for investors subsequently with the share price halving, profitability evaporating and revenue growth being anemic but maybe everything is not lost.

The beauty of the stock market is little investor interest typically translates into little share market capitalisation and with 33.7 million shares on issue GLH is on the small side of nano-cap (Using an 18 cent share price the share market capitalisation of GLH is $6 million AUD).  The beauty of such nano-cap stories is should GLH share price double or triple which I’m absolutely not saying, then we are only talking about $12 to $18 million capitalised company.  Hey at times the stock market will assign $3 million value to an ASX shell which excludes any business value, so today’s capitalisation is not assigning much in the way of value for GLH.

GLH is largely an on premise software company with only $240,000  of its current $4 million in annualised recurring revenue (as at 30 June 2019) being cloud software or SaaS.   The SaaS revenue today is largely generated from GLH’s medical referral and medical messaging applications which are small, but modern software architecture and growing strongly from a low base.

The company has recently released a simplified version of its practice management software-as-a-service software focused specifically at allied healthcare.  It is envisaged over the medium term the functionality of its SaaS practice management software will be extended and existing on-premise small hospital, medical practice and allied health (strong in mental health) clients will move from their premise based software to SaaS versions of the software.

In 2019 GLH generated $5.55 million revenue broadly split $3.7 million in software maintenance/subscription revenue, $1.7 million professional services, while losing $560k at the earnings before interest, tax, depreciation and amortisation level.  The company actually generated free cashflow of $174k in the 2019 which is positive to see.

The company is guiding to it will return to profitability in 2020.  Broadly this suggests investors are buying a healthcare software company trading on 1 times its revenues.  This compares with most software companies listed on the ASX which trade at more than 2 times revenues while some healthcare software outliers like Volpara, Promedicus, Mach7 are trading on ridiculous revenue multiples of 20x, 40x and 8x prospective revenues respectively.

We view the recent introduction of My Health Record by the Australian Federal Government as a potential positive investment catalyst for GLH. Healthcare software is a very busy space with US companies Cerner, AllScripts and EPIC controlling hospital electronic medical records and a myriad of smaller software companies providing practice management to medical centres.

On the negative side this business was established in 1985, listed at 50 cents on the ASX in April 2000 and today generates nearly identical revenues the company reported in its first full year of being listed (Year to June 30, 2001 revenues of $5.45 million vs $5.55 million in 2019).  The business is 55% owned/controlled by the Founder and current MD.  The business has survived but hardly prospered so it would be positive to see more targeted business strategy and management renewal.

Disclosure - HOLD GLH stock