Elos Medtech
Elos Medtech - Anticipating a strong quarter (ABG Sundal Collier)

2019-10-09 18:26
Q3 report on 24 October
Expect double-digit growth and improving margins
Trading at low end of fair value range of SEK 95-160
Q3 expectations
We expect Q3 sales of SEK 171m, up 11% y-o-y, with positive progress across all segments. We estimate that the biggest contributor to growth will be orthopaedics, up 16%, as we note strong momentum over the last couple of quarters. Growth has been supported by existing customers in trauma, extremities and robotic surgery, but the fall is expected to also see deliveries of new products. We estimate EBIT at SEK 15m, on a margin of 8.7% (7.7%). We expect that the margin will benefit from positive development in Life Science (+10% growth), which operates at a superior margin of ~13% (ABGSCe). We expect net income of SEK 9m, indicating EPS of SEK 1.07 (SEK 0.79), up 34% y-o-y.

Estimate changes
We lower our margin assumptions for the group. Although we still anticipate impressive margin improvement over the coming 2.5 years, we lower the rate of improvements somewhat. We reduce our ‘19e EBIT margin by 10bp, ‘20e by 10bp and ‘21e by 20bp. We note that ongoing efficiency measures have developed positively over the last year, but expect that a parallel focus on product development, sales improvements and capacity investments will result in a higher cost base than previously estimated, for FY’19e we expect an EBIT margin of 9.4% (6.0%).

Valuation
The share is currently trading at SEK 99.6, which is on the low end of our fair value range of SEK 95-160, indicating an average of SEK 127.5. While we do not believe that Elos Medtech will likely to reach its margin goal of 13% EBIT by FY’21e, we do expect to see significant margin expansion and stable growth over the coming 2.5 years. Detailed information regarding the fair value range assumptions and calculations can be found in our In-depth report published on 11 July 2019.


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