Further margin potential ahead – Updated 13 Aug
MedCap reported Q2 net sales of SEK 173m, implying 20% total growth y/y (9% excluding acquisitions). The strong growth lifted EBITDA by 49% y/y, to SEK 18.5m, lower than our SEK 25m estimate. The blame rests on higher group costs and weaker-than-expected results in Specialty Pharma and, caused by the lumpy CDMO (contract development and manufacturing organisation) part of the business.
Marketing material commissioned by MedCap.
Five years to double sales – Updated 29 May
New financial targets signals growth ambitions
Yesterday, MedCap’s board proposed new financial targets in the wake of the earlier changes in segment structure, with focus on two fast-growing and profitable business areas: MedTech and Specialty Pharma. The new financial goals included a revenue target of SEK 1.5bn to be reached within four to five years, plus an aim for annual EBITDA growth of 15% over the business cycle, with net debt/EBITDA maintained below 3x.
Acquisitions to fuel growth
As we expect MedCap’s sales in 2018E to reach SEK 740m, the new financial targets imply a doubling of sales by 2022E. This will be achieved through a combination of organic growth and future acquisitions. For 2022E we forecast sales of SEK 953m, without any contribution from acquisitions, which implies an active M&A agenda for the company in the coming years.
Leverage is currently elevated after the acquisitions in late 2017 (net debt/EBITDA of 2.5x at the end of 2017), but we expect MedCap’s strong cash flows to support deleveraging and the company could be (net) debt-free as early as 2019, assuming no new acquisitions. For 2018E-22E, we expect accumulated free cash flows of SEK 385m, which should provide ample firepower to fund new targets.
Vast improvment potential ahead
MedCap is currently experiencing positive business momentum, but we still see further improvements ahead in both MedTech and Specialty Pharma. Uptake in the Nordic speciality pharma portfolio is advancing well, aided by new product launches and product reimbursements. However, the portfolio is still far from meeting management’s long-term margin expectations and we suggest that further improvements via the launch of new products are needed before the segment achieves critical mass. We also see scope for improvements and synergy extraction from the two latest acquisitions within MedTech.
Few clouds on the horizon – Updated 14 May
Profitable growth in Q1
MedCap reported Q1 net sales of SEK 183m, beating our estimate by 3%, which represented 30% growth compared with the same period last year. The strong growth lifted EBITDA to SEK 22m, which was an improvement of 47% compared with last year. The results were generally in line with our estimate and the higher profit y/y was fuelled by improvements in Specialty Pharma and MedTech.
Further improvment potential ahead
MedCap’s business momentum is currently positive, but we still see further improvements ahead for both MedTech and Specialty Pharma. As the report was largely in line with our expectations, we make only minor adjustments to our sales and earnings estimates.
Updated 26 February
Solid delivery in core segments
MedCap reported Q3 2018/17 (Nov-Dec) net sales of SEK 147m, compared to SEK 138m for the same period last year. Its core businesses, MedTech and Specialty Pharma, reported sales of SEK 120m, implying 36% y/y growth. Profitability improved significantly, with EBITDA of SEK 11.6m in the quarter, suggesting a y/y improvement of 356%.
Valuation and estimate changes
We update our model to reflect the new reporting structure, the acquisition of Strässle and raised expectations for Specialty Pharma, thanks to its positive trend over the past quarters. In addition, we lower our cost of capital assumption as the dismantling of Pharma Trading has structurally lowered MedCap’s future earnings volatility. Based on a discounted cash flow approach (DCF) and a weighted average cost of capital of 7.4-8.6%, we derive a new equity value per share between SEK 79 and SEK 92.
Firing on all cylinders – Updated 10 January
German acquisition to boost earnings
On 22 December, MedCap signed an agreement to acquire the German company Strässle & Co, which is a leading manufacturer of ECG vacuum systems. We look closer at the strategic fit and the synergy potential. MedCap has performed strongly in 2018 with a reported gain of 24% and we look to the next trigger of their report to be issued 23 February.
Updated December 1, 2017
MedCap’s Q1 net sales of SEK 199m was 3% higher than our expectations thanks to a faster integration of the latest acquisition, Scandinavian Nutrients. Profitability also surpassed our expectations with EBITDA of SEK 16.9m, implying 173% growth y/y. All business areas were profitable and the development in MedTech stands out, with 24% sales growth and a 2 pp EBITDA margin improvement y/y. Uptake in the Nordic speciality pharma portfolio is advancing and upcoming new product launches could support meaningful sales growth and margin improvements within Specialty Pharma.
Valuation and estimate changes
We make positive estimate revisions to reflect our assumptions for higher margin in MedTech, faster integration of Scandinavian Nutrients and recent transactions with minority shareholders. Based on a discounted cash flow approach (DCF), with variations in sales growth, EBIT (earnings before interest and taxes) margin and weighted average cost of capital (WACC) assumptions, we derive an equity value per share between SEK 35 and SEK 59.
Quality assets with defensive attributes
An investment in MedCap gives exposure to defensive assets in the Nordic Life Science segment. In the past couple of years, it has built a profitable investment portfolio of leading Nordic niche companies in the fields of MedTech, Pharma Trading and Specialty Pharma.
In the past two years, MedCap has invested heavily in establishing a speciality pharma franchise. These investments have burdened earnings, but the underlying trend shows promising signs. Between 2016/17and 2022/23, we estimate a combined sales CAGR for Specialty Pharma and MedTech of 6.9%.
Updated report – September 4, 2017
New fiscal year off to a solid start. Quarterly review and estimate change.
Updated report – June 14, 2017
We provide an update on our Commissioned research on MedCap. Read the full report here.
The Commissioned Research Report on MedCap does not contain a target price or recommendation, and we do not provide investment advice on the company. Rather, the report is an outline of some of the most important factors to consider when investing in MedCap, including a company overview, a valuation discussion, MedCap management introduction, historical financials and market outlook, as well as some key risks that the company may face. This is not an exhaustive description of the company or the risks related to it, and it should not be relied on as such, nor is it a substitute for the judgement of the recipient.
Initation report on MedCap – April 6, 2017
Transition to something special – Quality assets with defensive attributes
An investment in MedCap gives exposure to defensive assets in the Nordic Life Science segment. The company has, in short time period, built a profitable investment portfolio of companies in the fields of MedTech, Pharma Trading and Specialty Pharma with combined sales above SEK 900m.
Nordea Markets is the commercial name for Nordea’s international capital markets operation. The information provided herein is intended for background information only and for the sole use of the intended recipient. The views and other information provided herein are the current views of Nordea Markets as of the date of this document and are subject to change without notice. This notice is not an exhaustive description of the described product or the risks related to it, and it should not be relied on as such, nor is it a substitute for the judgement of the recipient. The information provided herein is not intended to constitute and does not constitute investment advice nor is the information intended as an offer or solicitation for the purchase or sale of any financial instrument. The information contained herein has no regard to the specific investment objectives, the financial situation or particular needs of any particular recipient. Relevant and specific professional advice should always be obtained before making any investment or credit decision. The document has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination.
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Conflict of interest
Readers of this document should note that Nordea Markets has received remuneration from the company mentioned in this document for the production of the marketing material. The remuneration is predetermined and is not dependent on the content. It is important to note that past performance is not indicative of future results. Nordea Markets is not and does not purport to be an adviser as to legal, taxation, accounting or regulatory matters in any jurisdiction. This document may not be reproduced, distributed or published for any purpose without the prior written consent from Nordea Markets.
This report has been reviewed, for the purpose of verification of fact or sequence of facts, by the issuer of the relevant financial instruments mentioned in the report prior to publication. The review has led to changes of facts in the report. Completion date: 14 May 2018, 08:51 CET