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Another Europe contract win for Pro Medicus (ASX:PME), time to buy?

Pro Medicus Ltd (ASX: PME) has announced another contract win in Europe, with a large German university hospital.

Pro Medicus is a health imaging business that provides a full range of radiology IT software to hospitals, imaging centres and health care groups. Its technology is called Visage Imaging.

New European contract win for Pro Medicus

Pro Medicus has signed a 7-year contract with a Munich (Germany) based university hospital called Ludwig-Maximilians-Universitat. It’s one of the largest in university hospitals in Europe.

The deal will see Visage 7 technology implemented across all of LMU Klinikum’s radiology and subspeciality imaging departments, replacing legacy systems with a single centralised platform.

Visage will also be used in the hospital’s operating theatre for HD video documentation and point of care ultrasound archiving and viewing.

The LMU Faculty of Medicine is the largest medical training institution in southern Germany and, according to Pro Medicus, is regarded as one of the top academic hospitals in Europe.

The implementation is scheduled to commence in December 2020.

Pro Medicus CEO Dr Sam Hupert said: “Traditionally, large European teaching hospitals like LMU Klinikum have standardised on IT platforms from large, multinational imaging equipment (modality) vendors, making this a difficult market to penetrate. So this is a very significant milestone for us in this highly competitive market.”

Time to jump on Pro Medicus shares?

The Pro Medicus share price has gone up almost 4% in early trading in reaction to this news. That’s a very positive reaction.

It’s a great business, but it’s priced very highly too. At the current Pro Medicus share price, according to CommSec, it is valued at 109 times the 2021 financial year’s estimated earnings. Looking further ahead, it’s valued at 64 times the estimated earnings for the 2023 financial year.

Pro Medicus has a great balance sheet. It had $43.4 million of cash and no debt at the end of FY20 (and rising). It is also incredibly profitable, with an EBIT margin (click here to learn what EBIT means) of 52.5% in FY20. Again, the bigger it becomes the higher its margin seems to be going.

A high EBIT margin means that a high proportion of the new revenue that it wins, like the $10 million announced today, will fall to the net profit after tax (NPAT) line of its financials. That’s an attractive proposition.

I like that Pro Medicus is regularly growing its dividend to reward its long term shareholders. The low interest rate somewhat justifies the high price today, it’s growing quickly. However, the valuation is too rich for me to dive in today. I prefer other ASX growth shares like Pushpay Holdings Ltd (ASX: PPH).

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At the time of publishing, the author of this article does not have a financial or commercial interest in any of the companies mentioned.

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