Elos Medtech
Elos Medtech - No broken bones, the story holds (ABG Sundal Collier)
2019-07-19 17:40
A good report, adj. EBIT up 44% y-o-y
Growth driving distribution agreements for own products
Weaker than estimated margin, a minor bump
Sales bang in line, but EBIT miss of 10% vs. ABGSCeElos Medtech reported a decent quarter: sales were bang in line with our estimates. Sales were SEK 184m (0%vs. ABGSCe of 184m), up 11% y-o-y (organic excl. FX 7%). However, adj. EBIT came in below our expectations at SEK 15.6m (-10% vs. ABGSCe of 17.3m), resulting in a margin of 8.5% (6.5%) vs. ABGSCe of 9.4%. The surprise came from Dental where we had estimated that healthy growth in own products (+19% y-o-y) would support margins. Instead the segment showed an EBIT margin of 5.4%. While its own product generally have higher profitability, Elos is at a stage where it is producing a lot of new products, which have caused a drag on the quarter’s profitability. Life Science had an impressive EBIT margin of 15%. EPS came in at SEK 0.82 (ABGSCe of SEK 1.17).
Still healthy margin expansion, but at a lower rate
Following the report, we have decided to adjust our EBIT margin assumption, slightly lowering the rate of our estimated margin expansion. We adjust our margins by -70bp in ’19e, -20bp in ‘20e and -10bp in ‘21e. We continue to believe that efficiency measures, increasing volumes and own products will help drive margins going forward. We note that we were in-line with the Q2 report on sales and only fine-tune our growth assumptions. With Orthopaedics continuing to deliver top-line performance and Dental having signed distribution agreements in the US and Japan for its own products, we are confident that solid growth lies ahead for the group.
Confident about the future: fair value range of SEK 95-160
The share is up >45% YTD, trading at 16.5x ‘19e EV/EBIT. We see the Q2 report as a minor bump along a path of margin expansion and highlight that the adj. EBIT margin improved 200bp y-o-y. We maintain our fair value range for the share of SEK 95-160. For more details see our in-depth report
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