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Pihlajalinna - Becomes part of the consolidation

Pihlajalinna’s Q3 revenue was in line with expectations but profitability was better than expected. Mehiläinen made a cash tender offer of all the shares of Pihlajalinna with the offer price of EUR 16 per share. We see the offer likely to be approved by the shareholders. With the TP of EUR 16 (12) our rating is now “HOLD”.

Efficiency improvements already shown in Q3

Pihlajalinna delivered good Q3 result. Revenue grew by 5.5% (of which 3.7% organic growth) and was in line with estimates at EUR 122.7m (EUR 123.0m/121.5m Evli/consensus). The company’s adj. EBITDA beat expectations and was at EUR 17.4m (21.9% y/y) vs. our EUR 15.7m. Profitability improved mainly as a result of the efficiency improvement program but was also supported by increased revenue growth.

Mehiläinen plans to acquire Pihlajalinna

Mehiläinen has made a cash tender offer of all the shares of Pihlajalinna with the offer price of EUR 16 per share which values Pihlajalinna’s total equity at EUR ~362m. The offer price translates into a premium of ~46% compared to Monday’s closing price of EUR 10.96. The tender offer is unanimously recommended by the non-conflicted members of the board of directors of Pihlajalinna. We see the offer likely to be approved by the shareholders as the largest shareholders have already accepted the offer (~63% of shares). The combined revenue would represent some 23% of the total private social and healthcare market and in certain sectors the market shares might become too large, harming the competition. At the same time Terveystalo’s acquisition of Attendo’s Finnish branch in 2018 supports the approval. The offer is subject to the approval of the Finnish Competition and Consumer Authority (FCCA).

“HOLD” with TP of EUR 16.0 (12.0)

After the good Q3 result, we have fine-tuned our 19E-21E estimates. We expect 2019E sales to grow by 6.3% to EUR 518.5m and adj. EBIT of EUR 23.0 resulting in adj. EBIT margin of 4.4% (2018: 3.0%) The offer price of EUR 16.0 translates into EV/EBITDA multiple of 9.6x and 7.7x on our 19E-20E estimates which is 5-10% discount compared to the peer group. We have increased our TP to match the offer price of EUR 16.0 (prev. EUR 12.0) and our rating is now “HOLD”.

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