Pro Medicus Earnings: Margins Improve, but Shares Remain Expensive

Narrow-moat Pro Medicus' fiscal 2024 underlying EBIT grew a strong 34% to AUD 112 million, 4% above our forecast. While revenue of AUD 162 million, up 26% in constant currency, met our forecast, underlying EBIT margin expanded more, up 234 basis points to 70%. We increase our EBIT forecasts by 3% on average over the next ten years, with our forecast midcycle EBIT margin increasing to 73% by fiscal 2034 from 71% prior. While we initially assumed expenses such as travel and marketing during the coronavirus pandemic were abnormally low, the firm has proven it can strengthen its profitability. Our fair value estimate increases by 7% to AUD 37 per share due to higher forecast margins and the time value of money.