Pihlajalinna - Earnings are to improve in H2

We expect Q1 EBIT to have declined by EUR 3.4m y/y

Pihlajalinna’s organic growth was healthy throughout last year, including in Q4, as corporate and private customer demand bounced back from the pandemic lows. We estimate FY ‘22 organic growth to slow down to roughly half of the 13.5% rate seen last year. Q4 profitability saw a temporary setback as specialized care costs increased. We expect Pihlajalinna to receive compensation for these complete outsourcing costs later this year, but the negative effect was some EUR 2m in Q4 and we expect it to have been similarly significant in Q1 as well. Pohjola Hospital’s FY ’21 EBIT was ca. EUR -7m and hence Q1 EBIT will have to bear another meaningful burden. The Q1 figures will not fully reflect the acquisition as it was completed only by the beginning of February. We continue to expect EUR 156.6m revenue and EUR 3.3m EBIT for Q1.

Pohjola Hospital should involve no big surprises

Pihlajalinna previously indicated Covid-19 services revenue to decline this year. There was already some fading in Q4, and we expect this to have been the case also in Q1 even when the Finnish virus situation was by some measures the worst during the pandemic. We expect the Pohjola Hospital integration to have proceeded very much according to plan so far. Losses will still be there in Q2 but H2 could already show positive results. The EUR 5m in projected cost synergies are significant and the acquisition helps gain insurance customer volumes, which is an attractive segment.

Earnings and multiple expansion potential remain as before

Pihlajalinna’s peer multiples have remained largely unchanged in the past few months. The big picture on Pihlajalinna’s valuation is therefore intact: Pihlajalinna’s profitability now lags the (mostly) larger peers’ but should begin to catch up soon. Meanwhile the multiples for FY ’23-24 are some 30% below those of peers. We retain our EUR 14 TP and BUY rating.