Sales SEK 190m (+14% vs. ABGSCe 167m)

EBIT beat 38% vs. ABGSCe, record margin of 11.3%

Results temporarily boosted by warehouse sale

Q1 with strong margin improvements and organic growth
Elos Medtech reported a very strong quarter, with beats on both margins and sales. Sales were SEK 189.9m (+14% vs. ABGSCe 167.0m), up 22% y-o-y (organic excl. FX 15.2%) driven by high growth in all segments. However, Q1 numbers were temporarily boosted by SEK 13.3m through the sale of a finished goods warehouse to Bruel & Kjaer (+13.4% growth excluding the warehouse sale). EBIT came in at SEK 21.4m, resulting in an all-time high margin of 11.3% (7.0%) vs. ABGSCe 9.3%. The Q1 report makes us confident in management’s intense focus on Orthopedics and Dental.

New margin scenario ’19e EBIT up 11%
We have raised ’19e EPS estimates by 10% driven by both improving margins and higher sales. We are careful about extrapolating margins from Q1’19, but we are confident in ongoing efficiency initiatives, scalability and growing range of own products to drive margins going forward. We estimate the EBIT margin of 10.4% in ’19e to reach 11.6% by ’21e, and we note the company’s long-term goal of 13%. We raise our ’19e-20e sales estimates by around 4-5%, largely driven by growth in Dental (31% of group) on the back of strong demand from existing customers and newly launched products, as well as stronger-than-expected sales in Life Science (38% of group). We remain confident in the outlook for Orthopedics, given strong growth in robotic surgery and Elos Medtech’s strong positioning in the segment.

Long-term goals starting to look attainable
With strong margin expansion and demand ahead, we believe that the long-term goals of 13% EBIT margin and 10% annual sales growth are attainable. ’19e EV/EBIT at 14.1x and FCFy -0.9% (’19 capex heavy due to investment in the US), P/E NTM 14.4x in line with historical average at 14.5x.

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