Strong organic growth of 11.5%

Revisions for ’19e; sales +2.4% & EBIT -12%

FDA warning letter still affecting sentiment

Q1 summary
Boule Diagnostics reported a mixed set of numbers in Q1, with positive organic sales growth (11.5%) and EBIT of SEK 16.7m, 16% below ABGSCe of SEK 19.9m. Moreover, the loss from associates derived from Biosurfit of SEK 4.2m caused a miss of -35% on EPS. Biosurfit will negatively impact EPS in the coming quarters as well. The quality improvement process has increased R&D expenditures by ~SEK 0.5m-0.8m for the quarter, as Boule has to allocate resources to meet FDA regulations. The number of instruments sold in Q1 was above our expectations (+14% vs. ABGSCe) and the ASP was 7% below, mainly due to continued sales to India and other low margin markets. Consumables sales and other sales came in 7% and 18% above our estimates.

Improvement of sales capabilities
In light of the report, we raise our sales estimate for ’19e by 2.4%, mainly due to the strong sales in the first quarter. Furthermore, we lower our EBIT estimate by 12% mainly as a result of the announced write-down of SEK 6m in receivables during Q2. We expect the Cellavision partnership to contribute slightly to sales in Q2, with further ramp-up going forward. According to Cellavision, the reception from its distribution partners has been positive. Additionally, in the US, Boule has achieved preferred-vendor status with the largest medical distributor and entered a new distribution partnership with a supplier of larger hospital systems. We expect both of these to contribute further to sales growth.

Trading at ’19e EV/EBIT of 18x
The improvement process to meet FDA regulations continues and is expected to be fully implemented during Q3. However, there’s uncertainty related to the FDA process. It’s possible it will take longer than expected and it will hamper investor sentiment in the meantime. At the current share price, Boule is trading at an EV/EBIT of 18x on ’19e. Based on this, it is tra
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