Pihlajalinna - ‘19E focus on improving profitability

Pihlajalinna’s Q1 earnings were close to expectations. After a weak ’18, the company was able to improve its profitability and increase its organic growth. Pihlajalinna’s focus in 2019E is to take further actions to improve its operating profit. We keep our rating “BUY” with new TP of EUR 13 (12).

Profitability improvements continue in 2019E

In Q1, Pihlajalinna improved its operating profit with adjusted EBIT margin of 3.0% (-0.1% in Q1’18). Revenue growth was supported by new customer relationships in occupational healthcare but also by the new partnership with Fennia. Organic growth was 2.8% in Q1. In 2019E, the company continues focusing to improve profitability especially in clinics with weaker profitability levels. The company will also strengthen its services locally in mobile. Pihlajalinna’s interest is to expand its cooperation with municipalities and expand its occupational healthcare network in ‘19E.

SOTE collapsed but change is still needed

The health and social services reform collapsed in March. It is still unsure, whether the new government will start again with the SOTE reform but municipalities still need to find solutions for finding balance of financing health and social services. After the collapse of the reform, Pihlajalinna sees activity from municipalities has increased and expects that there is demand for their healthcare services.

We keep our rating “BUY” with new TP of EUR 13

Pihlajalinna targets to increase its revenue and EBIT in 2019E from 2018 levels. We foresee EBIT of EUR 24m (4.5% margin) and EUR 25m (4.6% margin) in ’19-‘20E. As Q1 revenue was above our expectations, we have increased our revenue expectation in 2019E to EUR 525m (previous EUR 515m). On our estimates, Pihlajalinna trades in 2019-2020E EV/EBITDA multiple of 7.3x and 5.9x. which translates into 23% and 26% discount compared to peer group. We maintain “BUY” with TP of EUR 13.

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