Q2 report 18 July

Expect EBIT +60% with sales +11%

Case refresher: margin expansion and stable growth

Decent Q2 expectations
In our view, Elos Medtech should produce decent Q2 results, with fairly easy comps, but slightly fewer working days compared to Q2’18. We forecast sales of SEK 184m, representing 11% growth, and expect EBIT growth of 60% y-o-y, to SEK 17m, resulting in margin of 9.4% (3.1%). We think costs will scale well based on 1) stable organic growth in the quarter and 2) a reduction in costs due to lower scrap and improved production efficiencies. Orthopaedics should be the strongest contributor to sales in Q2e with 20% growth, followed by Dental with 10% growth. Life Science should be a milder quarter and we forecast 4% growth. Our estimates include net income of SEK 9m resulting in EPS of SEK 1.17.

Promising growth trajectory and margin expansion
The company has ambitious goals of 10% organic growth and 13% EBIT margin. While Elos Medtech has been rather far away historically, recent production efficiency initiatives, intensified focus on its Dental and Orthopaedics segments, and strong positioning for its own proprietary products should provide ample support on margins. In addition, we conclude that several factors are supporting growth, including the customer willingness to outsource and the growing areas of digital dentistry and robotic surgery. After an investment-heavy period, we expect lower capex and believe that current capacity should be sufficient to support our growth estimates without the need for major investments.

Fair value range of SEK 95-160
By applying a DCF methodology across three different scenarios (bear, central, bull) we derive a fair value range of SEK 95-160, indicating an average of SEK 127.5. While we do not believe that Elos Medtech is likely to reach its goals by FY’21e, we are likely to see significant margin expansion and stable growth over the coming three years (see page 9 for scenario details).

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ABG Sundal Collier - Introduce.se