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Pihlajalinna - Focus on profitability

Pihlajalinna reports its Q2 earnings on next week’s Thursday, August 15th. During Q2, the company has actively expanded its service network across the country. The company also announced the launch of an efficiency improvement program in mid-June. We keep our rating “BUY” with TP of EUR 13.0 ahead of Q2.

Expanding occupational healthcare network continues

Pihlajalinna has grown fast in H1’19 through M&A and expanding the company’s service network. The company indicated earlier that it sees opportunities in expanding its occupational healthcare network as municipalities and other public sector entities are interested in divesting the occupational healthcare providers they currently own. As a result of that, Pihlajalinna has expanded its occupational healthcare network actively in Q2’19 as the company announced the acquisitions of Raisio’s occupational healthcare center Aurinkoristeys and Kouvola’s Työterveys. In addition to acquisitions, the company announced that it will open an occupational healthcare center to Rovaniemi and a healthcare center to Vaasa. The company has also agreed on cooperation with Sydänsairaala and pilot cooperation with Pohjola Vakuutus.

Pihlajalinna seeks annual cost savings of EUR 14m

Pihlajalinna announced in mid-June that the company will launch the preparations of an efficiency improvement program. Through the program, the company seeks to achieve annual cost savings of EUR 14m. The cost savings sought are meaningful as the company’s adj. EBIT in 2018 was EUR 14m. Last year, the company underwent organizational restructuring and in connection with that, conducted codetermination negotiations. The estimated annual cost savings of these were EUR 2.8m. The company stated earlier in Q1’19 that its focus in 2019E is to improve profitability by organic growth, increasing cross-selling and by addressing profitability issues in the new medical service centers. The commence of the newest efficiency improvement program supports the company’s long-term target to reach EBIT margin of 7%, which so far has seemed rather distant. We will update our estimates accordingly once we have more detailed information about the program.

We maintain “BUY” with TP of EUR 13

Our 2019E estimates are intact ahead of Q2 earnings. The company expects 2019E revenue to increase from last year while EBIT is expected to increase notably from last year. We foresee 2019E revenue of EUR 525m (7.6% y/y), while consensus is at EUR 520m and EBIT of EUR 24m (71.4% y/y) vs. consensus of EUR 22.7m. The targeted cost savings add upward pressure on our estimates, but these will be updated once we have more detailed information. We expect Q2’19 revenue of EUR 134m (cons. EUR 132.5m) and EBIT of EUR 4.8m (cons. EUR 4.6m) resulting in EBIT margin of 3.6%. On our estimates, Pihlajalinna trades at 19E-20E EV/EBITDA multiple of 7.2x and 6.6x, which translates into ~25% discount compared to the peer group. We keep our rating “BUY” with TP of EUR 13 ahead of Q2.

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