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Pihlajalinna - 20E guidance withdrawn

Pihlajalinna withdrew its 20E guidance as it is challenging to assess and predict the total impacts of the coronavirus. Half of the operations are expected to remain stable but the demand for non-urgent health care and oral health services has declined. We expect 20E revenue to remain at the same level as in ’19 (EUR 519m) and adj. EBIT of EUR 27m (28% y/y). However, there are significant uncertainties with our short-term estimates. Our rating is now “BUY” (“HOLD”) with TP of EUR 16.

20E guidance temporarily withdrawn
Pihlajalinna withdrew its guidance for 20E as it is challenging to predict the total financial and operational impacts caused by COVID-19 and the given emergency laws. A new guidance will be given at a later point, when the total impacts can be more reliably assessed. According to the company, during the first months of the year, turnover and profitability have developed as expected. Based on the previous guidance given in February, Pihlajalinna expected turnover and adj. EBIT to improve from the previous year.

Non-urgent and oral health services hampered by COVID-19
According to the company, comprehensive outsourcing in the context of the social welfare and healthcare reform and other fixed-price invoicing is related to a steady recognition of income over time. Profitability of these kinds of contracts normally remains stable, even during periods of low demand. Demand for housing services for the elderly and recruitment services is not expected be affected by the situation. Therefore, more than half of the business operations are expected to remain stable. Also, demand for remote services has increased. Pihlajalinna’s fitness centers have been temporarily closed since late March and the demand for non-urgent healthcare and oral health services has decreased due to the coronavirus. We expect the demand for these services to increase after the situation, which should partly compensate this period of low demand.

“BUY” (“HOLD”) with TP of EUR 16
We have decreased our 20E turnover expectation by ~3% and adj. EBIT expectation by ~24%. We now expect 20E turnover to remain at the same level as in ‘19 (EUR 519m) and adj. EBIT of EUR 27m (28% y/y). Adj. EBIT is expected to improve due to the cost savings resulting from the efficiency improvement program that was launched last summer. However, we note that there are significant uncertainties especially with our short-term estimates. The tender offer by Mehiläinen is currently being under review of the FCCA. As expected, the FCCA initiated the phase two investigation, meaning that the process will be completed at the end of Q2’20E or latest during Q3’20E. We keep our TP at the tender offer price of EUR 16 and upgrade our rating to “BUY” (“HOLD”).

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