Modest growth of 1% y-o-y: margin contraction continues

Lower margin assumptions in Sweden

EV/EBIT of 9.4x, dividend yield of ~7%

Sales and EBIT fell short of expectations in Q4
Dedicare ended 2018 with Q4 sales amounting to SEK 193m, 7% below our expectations. Market conditions remain tough within the Swedish segment. Demand for staffing social workers continues to decline. This, combined with price pressure and wage inflation, resulted in sales in Sweden declining by 7% y-o-y, with an EBIT of SEK 3.6m, corresponding to a margin of 2.7%. Note that start-up costs for establishing operations in Finland and Umeå were taken in the quarter, but were not quantified by the company. As we have previously highlighted, Norway remains healthier, ending 2018 strongly, with sales growth of 31% for H2’18. Dedicare continues to gain Norwegian market share, primarily within the Nurse segment. For the second consecutive quarter, the company reported higher EBIT in Norway than in Sweden.

Negative revisions of 5-6% on ’19e-’20e
In light of the report, we have cut our sales estimate by 2% for 2019e and our EBIT estimate by 6%. We argue that the present conditions in Sweden will remain into 2019, and have thus lowered our margin and growth assumptions for the segment. On the other hand, we leave our estimates fairly unchanged for Norway. As we have highlighted before, our estimates do not reflect any potential implications from the VAT ruling, affecting Dedicare’s private customers in Sweden.

Norway could drive earnings growth in H2’19e
Given Dedicare’s strong growth in Norway, combined with the tough conditions in Sweden, we assert that Norway is already capable of driving earnings growth for the group in H2’19e. That would be encouraging to see, after six straight quarters with declining earnings y-o-y. On our revised estimates, the share is currently trading at an EV/EBIT of 9.4x and EV/Sales of 0.6x for 2019e, with a dividend yield of ~7%.

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