Navigating Mixed Signals: Update on Medicalgorithmics' ECG Business Outlook

Mixed outlook in ECG

In this report, we update our forecasts and valuation of Medicalgorithmics. Based on the new forecasts and the current risk-free rate, we cut our Fair Value to PLN 41.2ps. As the new FV implies 50% upside potential of the current share price, we maintain our recommendation to BUY. Medicalgorithmics continues to rebuild its business model in line with its strategic goals, and we see progress in terms of the number of IDTF contracts as well as work on the implementation of VCAST.

There is still a tremendous amount of work ahead for MDG to continue to recover the company.

The 2024 results, burdened by the termination of the React deal, will show if and to what extent the company can rebuild revenue and profitability in the key US market. Moreover, VCAST is entering a decisive period with important newsflow ahead, it started the EU registration and should soon start clinical trials and registration in the US.

Mixed newsflow in the ECG business

Over the past few months, MDG has begun to implement its new diversification strategy in the US market. The company has communicated several agreements to integrate MDG software with other devices, and the first agreements with IDTFs other than React have emerged. We assume contributions from these, initially on a small scale as early as 1Q24E. On the other hand, React (formerly Medi-Lynx) just terminated the contract with MDG. The deal ends in 4Q23.

In our model, however, we assumed that the deal would break even six quarters later, in mid-2025. Consequently, we are cutting forecasts for 2024E, assuming an EBITDA loss, as React generated approximately half of MDG revenues, USD 1.1m quarterly. However, with business growth from the new contracts, we assume break-even EBITDA in 2025E and EBIT in 2026E.

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