Pro Medicus (ASX: PME)

Pro Medicus shares are trading at a 240% premium to our fair value.

Pro Medicus’ strategy revolves around renewing existing contracts and winning new clients for its main product, Visage 7, while increasing its price point. The company won six out of six major public tenders it competed for in fiscal 2021, which often involved on-site pilot tests. While this likely highlights Visage 7’s current superior speed, scalability, and resilience, continued investment in research and development is imperative for the firm to remain at the forefront of innovation and consistently win contracts. Most of the firm’s expenses are allocated to over 40 software engineers with the main R&D center located in Berlin. The company also recently extended its R&D capability in New York in collaboration with NYU Langone Health in 2021. Its R&D efforts mostly revolve around software enhancements, program extensions, and research in artificial intelligence to assist in diagnoses.

Many of Pro Medicus’ competitors already utilize server-side rendering and cloud-native architecture. Legacy systems are also mostly owned by larger competitors such as GE Healthcare, Fujifilm, and Philips, which will be incentivized by the high returns in the industry. In Australia, Sectra won an $85 million 13-year deal over Pro Medicus with NSW Health for both its Radiology Information System and Picture Archiving Communications System in 2020.

Visage 7 has found most success with US academic hospitals and in fiscal 2022 was in nine out of the top 20 ranked US hospitals, more than double its nearest competitor. While Pro Medicus has secured a few contracts with midmarket US hospitals such as Allegheny and Wellspan, wider uptake has been slow, with Visage 7’s features likely superfluous for their normal operations. However, Pro Medicus is still targeting smaller radiology groups that seek to consolidate IT infrastructure and become more efficient.

Currently, Visage 7 is limited to radiology departments, but Pro Medicus is aiming to extend the product set to other specialty departments, including cardiology and ophthalmology. In addition, when winning contracts, the firm has other product offerings, such as Open Archive or Visage RIS, that it can cross-sell to clients.

Bulls say

  • Pro Medicus is well positioned to benefit from industry tailwinds such as cloud adoption, larger datasets, and remote access.
  • Earnings are extremely defensive due to contracted revenue being largely guaranteed over five to eight years from customers.
  • The long-term growth opportunity is significant as most of the US market still uses legacy systems, and other geographies are largely untapped.

Bears say

  • Product differentiation is unlikely to be durable, with low barriers to entry and larger competitors already utilizing server-side rendering and cloud-native architecture.
  • Wide adoption outside of academic hospitals is unproved, and superior speed and visualizations are likely superfluous features for the average hospital.
  • Future contract wins are likely to be smaller as Pro Medicus already dominates the larger US academic hospital market.

Lynas Rare Earth (ASX: LYC)

Lynas Rare Earth shares are trading at a 112% premium to our fair value.

Lynas Rare Earths is the largest rare-earth producer outside China, with vertically integrated operations spanning mining, refining, and separation of various rare-earth oxides. It owns the Mount Weld mine in Western Australia, one of the highest-grade, lowest-cost, and longest-life rare-earth deposits in the world. It also has processing operations in Kalgoorlie, Australia and Kuantan, Malaysia. Lynas’ main products are separated, light rare-earth neodymium, or Nd, and praseodymium, or Pr, which account for approximately 60% of its production. They are sold to customers in the form of neodymium-praseodymium oxide. Lynas sold 6,600 metric tons of NdPr in fiscal 2025, about 10% of global supply, and we expect it to produce around 12,500 metric tons of NdPr midcycle in fiscal 2030 as it ramps up to its current nameplate while further expanding capacity.

Its customers process NdPr into NdPr metal, which is then used to manufacture permanent magnets that are used in renewables, electric vehicles, defense, and other applications.

Recently, the group expanded its facilities in Malaysia to also separate heavy rare-earth oxides such as dysprosium, or Dy, and terbium, or Tb. It is currently the only commercial producer of separated heavy rare-earth oxides outside China.

It is further expanding NdPr capacity and starting to produce additional separated rare-earth materials, including samarium (Sm). Lynas also intends to move downstream into rare-earth metal and magnet production, potentially in Malaysia and/or with the assistance of the US government at Seadrift in Texas. Further government assistance may also come from potential price floors on its NdPr oxide production. The group receives low-cost financing from Japan in return for priority access to the majority of its NdPr production, as well as its Dy and Tb production, to the extent that it is possible under any future agreements with the US.

The balance sheet is strong. As of the end of June 2025, the firm had net cash of approximately $900 million pro forma for its capital raising in August/September 2025. It is likely to commence paying dividends from its first-half fiscal 2026 results.

Bulls say

  • Mount Weld is one of the world’s highest-grade rare-earth deposits with a remaining mine lifespan of more than two decades and with low sovereign risk.
  • The rare-earth industry should continue to see strong demand growth from the rollout of renewables and the growing uptake of electric vehicles.
  • It will likely benefit from price support from Western governments as they seek to reduce China’s dominance of the industry.

Bears say

  • Rare-earth prices are driven by Chinese dominance of the industry; the Chinese government has artificially suppressed prices in the past.
  • Increased Western government support, including price floors for rare-earth projects, could lead to an oversupply once they are developed.
  • Customers are trying to reduce or replace their use of rare-earth materials, potentially affecting demand over the longer term.

Hub24 Ltd (ASX: HUB)

Hub24 shares are trading at a 125% premium to our fair value.

At core, Hub24 is a provider of investment administration software as a service. This includes portfolio administration, investment management tools, and managed account services. The firm has a diversified offering, with administrative capabilities spanning custodial and noncustodial assets, self-managed super funds, trusts, and corporate compliance. Endeavors to add value include providing data analytics or features to facilitate dynamic advice strategies. It is also well integrated with external financial services and software providers. These efforts help Hub24 capture more touchpoints within the advice landscape, and support its endeavors to streamline the implementation of financial advice to clients under a single—Hub24’s—platform.

Hub24 has exploited the bureaucracy and lethargy of the small number of incumbent wealth management firms in Australia, by developing a superior product and service. This has helped it rapidly grow FUA. The firm has benefited from the Future of Financial Advice reforms, which had protocols like bans on conflicted remunerations or duty for advisors to act in clients’ best interests. The 2018 Hayne Royal Commission was another material tailwind. These events led advisors to: 1) break away from incumbent wealth management businesses; and 2) seek new fee sources, including managed accounts, which were mainly available on independent platforms like Hub24.

We expect future competition among platforms to be more even, rather than skewed in favor of specialty firms like Hub24. We believe Hub24 will continue gaining share in the medium term, albeit slower than historically. It will benefit from the post-Royal Commission popularity of specialty platforms, but this trend will likely subside in time. Across the industry, all players, including incumbent firms, have evolved to comply with regulatory reforms and improved their own products.

Given Hub24 remains relatively subscale to incumbent platforms and the tight regulatory scrutiny, we don’t expect the firm to win a price war, nor can it charge a premium for its products. Fee compression and growth investments are likely to limit the degree of operating leverage that it can achieve.

Bulls say

  • Despite rapid growth, Hub24 accounts for only a small proportion of the investment administration market. There remains significant earnings upside.
  • Both the breadth and depth of Hub24’s product offering strengthens its value proposition, facilitates greater cross-selling.
  • Hub24 is likely to continue winning share across its verticals despite competition. It has an untarnished name and does not have the bureaucracy of larger firms—many of which are poorer-rated and are busy stemming outflows.

Bears say

  • Hub24 operates in a commoditized industry. We expect the larger providers to continue improving the functionality of their platforms and compete more aggressively on price.
  • Hub24 lacks an aligned advisor network to direct fund flows to its platform. Unlike conventional software businesses, it operates in a highly regulated industry that perennially advocates lower fees for consumers.
  • Efforts to build switching costs are unlikely to succeed due to the replicability of its efforts by peers, the inessentiality of certain offerings and the sheer variance in client needs and preferences.

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Moat Rating: An economic moat is a structural feature that allows a firm to sustain excess profits over a long period. Companies with a narrow moat are those we believe are more likely than not to sustain excess returns for at least a decade. For wide-moat companies, we have high confidence that excess returns will persist for 10 years and are likely to persist at least 20 years. To learn about finding different sources of moat, read this article by Mark LaMonica.