Pihlajalinna - Upgraded to “BUY”

Positive surprise with Q4 result

Pihlajalinna’s Q4 result outpaced the expectations. Revenue increased by 2.6% y/y to EUR 137.2m (135.2m/135.5m Evli/cons). Revenue growth was driven by increased COVID-19 testing volumes which increased by 67% compared to the previous quarter. At the same time, customer volumes in private clinics locations were 10% lower compared to the comparison period. Adj. EBIT improved by ~31% to EUR 7.3m (5.3m/4.8m Evli/cons). 2020 dividend proposal of EUR 0.20 beat also clearly the expectations (0.12/0.09 Evli/cons).

Revenue streams from several sources

Pihlajalinna’s measures taken towards improved profitability have worked and we expect the company is able to increase its profitability further. Pihlajalinna has growth opportunities in several markets and the company has strengthened its positioning e.g. in the occupational healthcare market (e.g. Työterveys Virta). The company has expanded its operations in the public side as the services of Selkämeren Terveys Oy began in the beginning of the year. The Huhtasuo health center outsourcing started in December. Additionally, Pihlajalinna won a significant proportion of a competitive bidding process for the outpatient clinic, surgery, and inpatient services of the Northern Ostrobothnia Hospital District in early 2021.

“BUY” (“HOLD”) with TP of EUR 12 (10.5)

Pihlajalinna expects 2021 revenue to increase clearly and adj. EBIT to improve clearly compared to 2020. The company will introduce its updated strategy soon and we expect to get more color on that in connection with the CMD which takes place in late March. We expect 21E revenue growth of ~10% (EUR 559m) and adj. EBIT margin of 4.9% (EUR 27.3m). On our estimates, the company trades with 21E-22E EV/EBIT multiple of 15.6x and 13.2x which translates into 12-13% discount compared to the peers. We upgrade to “BUY” (“HOLD”) with TP of EUR 12 (10.5).