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Pihlajalinna - Profitability and pipeline in focus

Pihlajalinna will report its Q4 earnings on Feb 15th. Profitability development and news flow regarding the new contract pipeline are of interest, as before. Our rating and target price (“Buy”, TP EUR 12) are unchanged ahead of Q4.

Company lost two small contracts during Q4

Kymijoen Työterveys, which Pihlajalinna acquired in early 2018, lost two customer contracts (Kouvola and Kotka) in Q4, following tendering processes. Contracts were transferred to Terveystalo from start of 2019. Personnel of Kymijoen Työterveys was given protection against dismissal for two years. Pihlajalinna plans to utilize the resulting personnel surplus in other undersupplied regions as well as in its other private service provision within the region. Management has estimated that the revenue impact of the two lost contracts is about EUR -2m in total annually. We assume the negative earnings impact at EUR 1m+ for 2019E.

Terveyspalvelu Verso acquired in Q4

Pihlajalinna executed on its altered expansion plan by acquiring Terveyspalvelu Verso, which produces occupational healthcare services at 17 clinics in Northern Savo region. Price tag was not disclosed. Transaction was completed at the end of Q4.

We expect profitability to improve in Q4

Pihlajalinna’s profitability and organic growth showed signs of turning to better in Q3, supported by a streamlined cost structure and the drop of insurance revenue leveling out. We expect cost savings to continue supporting profitability and foresee adj. EBITDA margin improving y/y in Q4.

Rating and TP unchanged ahead of Q4

We expect Q4 revenue of EUR 127m (growth 18%) and adj. EBITDA of EUR 10.9m (margin 8.6%) vs. EUR 8.5m (margin 7.9%) last year. We expect a dividend to be cut to EUR 0.08 vs. EUR 0.16 last year, due to higher leverage and lower earnings in 2018E. Our rating and target price (“Buy”, TP EUR 12) are unchanged ahead of Q4.

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