Oriola - Course set on profit jump
We initiate coverage of Oriola with a target price of EUR 1.1 and ACCUMULATE-rating. Oriola is seeking a clear improvement in its profitability in the long term, which if materialized, would provide significant upside potential.
Well positioned in healthy, growing market
Oriola is a pharmaceutical distribution and services company, maintaining a leading position within its operating markets Finland and Sweden. Oriola operates in steadily growing markets, with the distribution market defensive by nature but consolidated, while the more fragmented market for health products provides potential for faster growth. Oriola through a joint venture also owns 50% of Sweden’s third-largest pharmacy chain Kronans Apotek.
Targeting clearly improved profitability
Oriola’s profitability, measured by the adj. EBIT margin, has fallen significantly from mid-2010 peaks to the 1.0-1.5% levels seen during the 2020’s and growth in Oriola’s invoicing during the past years in the lower single-digits. 2024 saw growth picking up to 5.1% and the adj. EBIT improving by 30% y/y. In the long term, Oriola targets a net sales growth at around the market rate, with a minimum of 4%, while seeking to achieve an EBIT margin of above 3%. We estimate net sales growth to amount to around 5% p.a. during 2025-2027, expecting accelerated growth in the wholesale business. We estimate profitability to improve gradually towards an adj. EBIT margin of 1.9% in 2027. Although our estimate is cautious in relation to the target, with accelerated growth in the more profitable wholesale business, value-driven growth in the distribution business, and cost savings and enhanced efficiency through for instance the on-going ERP and warehouse management investment, the target could be achieved.
Target price of EUR 1.1, ACCUMULATE-rating
We initiate coverage of Oriola with a target price of EUR 1.1 per share and ACCUMULATE-rating. Our valuation is based on a sum-of-the-parts approach, through which we arrive at an equity value of EUR 1.46 per share, which we further adjust for market related and company specific risk. In the long-term, Oriola exhibits significant upside potential should profitability move towards the 3% target and profitability of Kronans Apotek improve to levels corresponding to that of the industry.