Pihlajalinna |

Strongly growing company in social welfare and healthcare field

| Finland

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Financial overview

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Pihlajalinna - 20E guidance withdrawn

30.03.2020 | Company update

Pihlajalinna withdrew its 20E guidance as it is challenging to assess and predict the total impacts of the coronavirus. Half of the operations are expected to remain stable but the demand for non-urgent health care and oral health services has declined. We expect 20E revenue to remain at the same level as in ’19 (EUR 519m) and adj. EBIT of EUR 27m (28% y/y). However, there are significant uncertainties with our short-term estimates. Our rating is now “BUY” (“HOLD”) with TP of EUR 16.

20E guidance temporarily withdrawn
Pihlajalinna withdrew its guidance for 20E as it is challenging to predict the total financial and operational impacts caused by COVID-19 and the given emergency laws. A new guidance will be given at a later point, when the total impacts can be more reliably assessed. According to the company, during the first months of the year, turnover and profitability have developed as expected. Based on the previous guidance given in February, Pihlajalinna expected turnover and adj. EBIT to improve from the previous year.

Non-urgent and oral health services hampered by COVID-19
According to the company, comprehensive outsourcing in the context of the social welfare and healthcare reform and other fixed-price invoicing is related to a steady recognition of income over time. Profitability of these kinds of contracts normally remains stable, even during periods of low demand. Demand for housing services for the elderly and recruitment services is not expected be affected by the situation. Therefore, more than half of the business operations are expected to remain stable. Also, demand for remote services has increased. Pihlajalinna’s fitness centers have been temporarily closed since late March and the demand for non-urgent healthcare and oral health services has decreased due to the coronavirus. We expect the demand for these services to increase after the situation, which should partly compensate this period of low demand.

“BUY” (“HOLD”) with TP of EUR 16
We have decreased our 20E turnover expectation by ~3% and adj. EBIT expectation by ~24%. We now expect 20E turnover to remain at the same level as in ‘19 (EUR 519m) and adj. EBIT of EUR 27m (28% y/y). Adj. EBIT is expected to improve due to the cost savings resulting from the efficiency improvement program that was launched last summer. However, we note that there are significant uncertainties especially with our short-term estimates. The tender offer by Mehiläinen is currently being under review of the FCCA. As expected, the FCCA initiated the phase two investigation, meaning that the process will be completed at the end of Q2’20E or latest during Q3’20E. We keep our TP at the tender offer price of EUR 16 and upgrade our rating to “BUY” (“HOLD”).

Pihlajalinna - Expecting a profitability turnaround in 20E

17.02.2020 | Company update

Pihlajalinna’s Q4 revenue was as expected at EUR 133.8m (Evli 133.6m) but profitability was weighed down by increased costs. Q4 adj. EBIT amounted to EUR 5.6m (Evli 7.8m). The tender offer by Mehiläinen is currently being reviewed in FCCA and the process is expected to be completed at the end of Q2’20 or latest during Q3’20. For ‘20E we expect a clear improvement in profitability. We keep our rating “HOLD” with TP of EUR 16.

Q4 revenue in line – adj. EBIT missed expectations

Pihlajalinna’s Q4 revenue of EUR 133.8m (5.4% y/y) was as anticipated (Evli/cons EUR 133.6m/134.4m) but adj. EBIT of EUR 5.6m missed the expectations (Evli/cons EUR 7.8m/8.5m). Profitability was hampered by increased costs related to public specialized care which were concentrated towards the end of the year. Volume and profitability developed favorably in sales to insurance companies (revenue up by 18.1% y/y) but also in occupational healthcare, following the acquisition of Terveyspalvelu Verso. Due to the tender offer by Mehiläinen, no dividend for ’19 is proposed (Evli/cons EUR 0.15/0.15).

Expecting a turnaround in profitability

In ’19, the performance especially in occupational healthcare was good as revenue in the segment grew more than 25% y/y. Profitability was positively impacted by increased share of fixed price services and development of operational models. We expect further growth in occupational healthcare but also in sales to insurance companies, of which, the latest agreement with Pohjola Insurance is an example. Due to the uncertainties around the social and healthcare reform, municipalities have become more active on outsourcing projects. In late ’19, Kristiinankaupunki and Pihlajalinna agreed on a partial outsourcing deal, starting in ‘21E, with total value of EUR ~90m. The contract is at least for 15 years. For ‘20E we don’t expect any new outsourcings to occur. We expect profitability (adj. EBIT) to improve by 68% y/y in ’20E and by 7% y/y in ‘21E due to the cost savings resulting from the efficiency improvement program that was launched last summer. We expect ’20E-‘21E revenue growth of ~3-4%.

“HOLD” with TP of EUR 16 intact

The tender offer by Mehiläinen is currently being under review of FCCA. The first phase investigation will be completed by mid-March though it is highly likely that FCCA will initiate continued phase two proceedings after phase one, meaning that the process is likely to be completed at the end of Q2’20E or latest during Q3’20E. According to Pihlajalinna’s guidance, ‘20E revenue and adj. EBIT are expected to increase from ‘19. We expect ‘20E revenue of EUR 538m (3.8% y/y) and adj. EBIT of EUR 35.1 (68% y/y). Our target price is in line with the tender offer price of EUR 16. We keep our rating “HOLD”.

Pihlajalinna - Profitability below expectations

14.02.2020 | Earnings Flash

Pihlajalinna’s Q4’19 revenue amounted to EUR 133.8m vs. EUR 133.6m/134.4m Evli/cons, while adj. EBIT landed at EUR 5.6m vs. EUR 7.8m/8.5m Evli/cons estimates. Organic growth increased by 3.1% y/y. 20E consolidated revenue is expected to increase from the 2019 level. Adjusted EBIT is expected to increase compared to 2019.

• Q4 revenue was EUR 133.8m vs. EUR 133.6m/134.4m Evli/cons estimates. Revenue grew by 5.4% y/y. Organic growth was 3.1% y/y.

• Q4 adj. EBITDA was EUR 14.4m (10.8% margin) vs. EUR 16.7m/17.5m Evli/cons estimates. Profitability was affected by the costs of public specialized care that were concentrated towards the end of the year. Personnel expenses were also increased by stricter requirements imposed by the authorities.

• Q4 adj. EBIT was EUR 5.6m (4.2% margin) vs. EUR 7.8m/8.5m (5.8%/6.3%) Evli/cons estimates.

• Q4 EPS was EUR 0.16 vs. EUR 0.23/0.21 Evli/cons.

• Due to the Mehiläinen’s tender offer, no dividend for ’19 is proposed (EUR 0.15/0.15 Evli/cons).

• Guidance for 20E: consolidated revenue is expected to increase from the 2019 level. Adjusted EBIT is expected to increase compared to 2019

Pihlajalinna - Profitability in focus

07.02.2020 | Preview

Pihlajalinna reports its Q4 result on 14th of Feb. We expect Q4 sales of EUR 133.6m (5.2% y/y) and adj. EBIT of EUR 7.8m, resulting in adj. EBIT margin of 5.8%. We have kept our estimates intact ahead of Q4 and retain our rating “HOLD” with TP of EUR 16.0.

Expecting further profitability improvements in Q4

Pihlajalinna implemented its efficiency improvement program last summer, targeting annual cost savings of EUR 17m and indicated that already some EUR 5m savings could be seen in H2’19. In Q3, we saw improvement in profitability as adj. EBIT rose by ~60% y/y. Expansion particularly into regional capitals continued in ’19 as multiple new clinics were opened, boosting revenue growth. We expect Q4 revenue growth of 5.2% y/y (133.6m), driven by new clinics and adj. EBIT of EUR 7.8m (~13% y/y), resulting in adj. EBIT margin of 5.8%.

Increased ownership in municipal joint-stock companies

In late Q4, Pihlajalinna increased its ownership in its municipal joint-stock companies Kuusiolinna Terveys and Mäntänvuoren Terveys. After the transactions, Pihlajalinna’s ownership in Kuusiolinna Terveys is 89% (51%) and in Mäntänvuoren Terveys 91% (81%). Pihlajalinna pays EUR 16.3m for the shares of Kuusiolinna Terveys and EUR 2m for the shares of Mäntänvuoren Terveys. The transactions have no impact on our revenue or profitability estimates. In our view, the increase in ownership is positive as the joint-stock companies represent a significant part of Pihlajalinna’s revenue and profit (the combined revenue of Kuusiolinna Terveys and Mäntänvuoren Terveys represented some 29% of total ’18 revenue) and due to the transactions, the share of non-controlling interest decreases, increasing earnings attributable to the owners of the parent company. We expect ‘20E revenue growth of 3.3% (536m), driven by new clinic openings and adj. EBIT improvement of ~53% (EUR 35.1m). Mehiläinen’s cash tender offer of Pihlajalinna’s shares is currently ongoing and being reviewed in FCCA.

“HOLD” with TP of EUR 16 intact

With our estimates intact, we expect 19E revenue of EUR 518.5m (6.3% y/y) and adj. EBIT of 23.0 (~60% y/y), resulting in adj. EBIT margin of 4.4%. We expect a dividend of EUR 0.15 (cons. EUR 0.14) for ’19. Our share price is in line with the tender offer price of EUR 16.0. We keep our rating “HOLD” with TP of EUR 16.

Pihlajalinna - Becomes part of the consolidation

06.11.2019 | Company update

Pihlajalinna’s Q3 revenue was in line with expectations but profitability was better than expected. Mehiläinen made a cash tender offer of all the shares of Pihlajalinna with the offer price of EUR 16 per share. We see the offer likely to be approved by the shareholders. With the TP of EUR 16 (12) our rating is now “HOLD”.

Efficiency improvements already shown in Q3

Pihlajalinna delivered good Q3 result. Revenue grew by 5.5% (of which 3.7% organic growth) and was in line with estimates at EUR 122.7m (EUR 123.0m/121.5m Evli/consensus). The company’s adj. EBITDA beat expectations and was at EUR 17.4m (21.9% y/y) vs. our EUR 15.7m. Profitability improved mainly as a result of the efficiency improvement program but was also supported by increased revenue growth.

Mehiläinen plans to acquire Pihlajalinna

Mehiläinen has made a cash tender offer of all the shares of Pihlajalinna with the offer price of EUR 16 per share which values Pihlajalinna’s total equity at EUR ~362m. The offer price translates into a premium of ~46% compared to Monday’s closing price of EUR 10.96. The tender offer is unanimously recommended by the non-conflicted members of the board of directors of Pihlajalinna. We see the offer likely to be approved by the shareholders as the largest shareholders have already accepted the offer (~63% of shares). The combined revenue would represent some 23% of the total private social and healthcare market and in certain sectors the market shares might become too large, harming the competition. At the same time Terveystalo’s acquisition of Attendo’s Finnish branch in 2018 supports the approval. The offer is subject to the approval of the Finnish Competition and Consumer Authority (FCCA).

“HOLD” with TP of EUR 16.0 (12.0)

After the good Q3 result, we have fine-tuned our 19E-21E estimates. We expect 2019E sales to grow by 6.3% to EUR 518.5m and adj. EBIT of EUR 23.0 resulting in adj. EBIT margin of 4.4% (2018: 3.0%) The offer price of EUR 16.0 translates into EV/EBITDA multiple of 9.6x and 7.7x on our 19E-20E estimates which is 5-10% discount compared to the peer group. We have increased our TP to match the offer price of EUR 16.0 (prev. EUR 12.0) and our rating is now “HOLD”.

Pihlajalinna - Tender offer from Mehiläinen

05.11.2019 | Earnings Flash

Mehiläinen and Pihlajalinna have on 5th of November 2019 entered into a combination agreement pursuant to which Mehiläinen will make a voluntary recommended public cash tender offer for all issued and outstanding shares in Pihlajalinna. The offer price is EUR 16.00 in cash for each issued and outstanding share in Pihlajalinna, valuing the company’s total equity at EUR ~362m. The offer price represents a premium of ~46%. The non-conflicted members of the board of directors of Pihlajalinna have unanimously decided to recommend that the shareholders of Pihlajalinna accept the tender offer.

  • Q3 revenue was EUR 122.7m vs. EUR 123.0m/121.5m Evli/consensus estimates. Revenue grew by 5.5% y/y. Organic growth was 3.7% y/y.
  • Q3 adj. EBITDA was EUR 17.4m (14.2% margin) vs. EUR 15.7m/11.4m Evli/cons estimates. Adj. EBITDA increased by 21.9% y/y.
  • Q3 adj. EBIT was EUR 9.3m (7.5% margin) vs. EUR 6.8m/3.8m Evli/cons estimates. Profitability improved due to the efficiency improvement program which was launched in June but was also supported by revenue growth.
  • Outlook for 2019E remains unchanged: Pihlajalinna’s consolidated revenue is expected to increase from 2018. Adj. EBIT is expected to improve clearly compared to 2018.

Pihlajalinna - Towards profitability improvement

30.10.2019 | Preview

Pihlajalinna will report its Q3 earnings on next week’s Tuesday, 5th of November. Our interest is on how the execution of the efficiency improvement program is going and what are the impacts for Q3. We have increased our revenue and earnings estimates by 1-2%, resulting from the cooperation agreement with Pohjola Insurance. We keep our rating “BUY” with TP of EUR 12 ahead of Q3.

Changes in service network

Pihlajalinna has faced efficiency problems especially with the new clinics which has impacted negatively on the company’s profitability. In order to improve profitability, the company launched an efficiency improvement program in H1 that aims to achieve annual cost savings of EUR 17m. The planned cost savings are expected to be realized during 2020. As a result of the efficiency improvement program the company informed that it will merge units but closures of some of the loss-making clinics are also possible. We have already seen some actions taken during Q3 as the company has announced changes (mergers and unit closures) to its service network at least in Eastern and Southwest Finland.

Cooperation agreement with Pohjola Insurance

Pihlajalinna and Pohjola Insurance signed a cooperation agreement in early September which is a continuation to the successful pilot project that took place during the summer. The company estimates that the turnover from the contract could be some EUR 5-10m per annum, which means 1-2% increase in revenue. As a result of the agreement we have increased our revenue and earnings estimates by 1-2% for 2020E-2021E.

We retain “BUY” with TP of EUR 12

We expect Q3’19E revenue to grow by 5.8% to EUR 123m (cons. of EUR 122m) driven by new clinics and fitness centers. We expect adj. EBIT of EUR 6.8m (cons. of EUR 5.4m) resulting in EBIT margin of 5.6%. We expect profitability to improve from last year as some of the costs savings are expected to be shown already in Q3’19. We keep our rating “BUY” with TP of EUR 12.

Pihlajalinna - Aiming for profitability turnaround

16.08.2019 | Company update

Pihlajalinna’s Q2 result fell short of expectations. The company faces profitability issues in many of its units and has launched an efficiency improvement program that aims at annual cost savings of EUR 17m. We keep our rating “BUY” with TP of EUR 12 (prev. EUR 13).

Q2 earnings weaker than expected

Pihlajalinna’s Q2 earnings fell short of expectations. The company’s revenue was EUR 130m vs. EUR 134m/132m Evli/cons. Revenue grew by 3.5% of which organic growth was 1.5% y/y. Adjusted EBITDA was EUR 10.8m (8.3% margin) vs. EUR 13.3m/13.2m (9.9%/9.9%) Evli/cons. EBITDA was negatively impacted by unequal resourcing of units and general salary increases. Adj. EBIT was clearly below expectations at EUR 2.1m vs. EUR 4.8m/4.6m Evli/cons. In a group level, EBIT was negative in April and May but improved in June. Profitability improved in the Forever fitness center chain and in public specialized care but decreased in outsourced primary care and social care services, private clinics, surgical operations and dental care services. Seasonality impacted the Q2 result as well.

Strong actions to improve profitability

Pihlajalinna’s long-term target is to increase its EBIT margin to over 7%, which so far has seemed rather distant. The company has faced efficiency problems especially with the new clinics which has impacted negatively on the company’s profitability. The company indicated that it has several loss-making clinics. In order to improve its profitability, Pihlajalinna launched an efficiency improvement program that aims to achieve annual cost savings of EUR 17m. The planned cost savings are expected to be realized during 2020. As a result of the efficiency improvement program the company informed that it will merge units but closures of some of the loss-making clinics are also possible. The focus is on operational management. The company estimated that the efficiency improvement program will help to reduce costs in H2’19 by approximately EUR 5m. The program involves a non-recurring item of approximately EUR 8m, which will be allocated to Q3’19 as an adjustment item. Despite of the weak Q2 result the company reiterated its guidance for 2019E and expects revenue to increase from 2018 and EBIT clearly to improve from last year.

High activity in M&A and partnerships

Pihlajalinna has been active in M&A and partnerships in H1’19 but the company has also been able to grow organically. During Q2, the company released a letter of intent on co-operation with Pirkanmaa Hospital District. The partnership seeks to design new and innovative service models with a strong customer focus. The company has also agreed on pilot co-operation with Pohjola Vakuutus. During the review period, Pihlajalinna has further expanded its occupational healthcare network by acquiring Raisio’s Aurinkoristeys occupational healthcare units and the Kouvola Työterveys occupational healthcare unit. Pihlajalinna also opened an occupational healthcare center to Rovaniemi in August. In H2’19, the company seeks to improve its services in its healthcare centers but also in mobile. Improved remote services should further support the company’s efficiency. Pihlajalinna sees that the collapse of social and healthcare service reform has activated municipalities and the company has indicated that it has new possible contracts in the pipeline.

We retain “Buy” with TP of EUR 12 (prev. EUR 13)

As a result of the weak Q2, we have decreased our 2019E estimates. We now expect 2019E revenue of EUR 516m (prev. EUR 525m). We expect adj. EBIT of EUR 20m (prev. EUR 24m) resulting in EBIT% of 3.9% (prev. 4.6%). Despite of the expected EBIT improvement (42.8% y/y) from 2018, 2019E earnings remain uncertain. If the planned efficiency improvements succeed in 2020E we expect a turnaround in profitability and the company to move towards its EBIT% target of 7%. On our estimates, Pihlajalinna trades at 2019E-2020E EV/EBITDA multiple of 7.5x and 6.1x, which translates into ~27% discount compared to the peer group. We keep our rating “Buy” with new TP of EUR 12 (prev. EUR 13).

Pihlajalinna - Q2 earnings below expectations

15.08.2019 | Earnings Flash

In Q2’19, Pihlajalinna’s revenue amounted to EUR 129.7m vs. EUR 134.0m/132.4m Evli/cons estimates, while adj. EBIT landed at EUR 2.1m vs. EUR 4.8m/4.6m Evli/cons estimates. Organic growth increased by 1.5% y/y. The company reiterated its 2019E guidance.

  • Q2 revenue was EUR 129.7m vs. EUR 134.0m/132.4m Evli/cons estimates. Revenue grew by 3.5% y/y. Organic growth was 1.5% y/y.
  • Q2 adj. EBITDA was EUR 10.8m (8.3% margin) vs. EUR 13.3m/13.2m (9.9%/9.9%) Evli/cons estimates. Adj. EBITDA increased by 5.6% y/y. Administrative and personnel costs were higher than planned as unequal resourcing and general salary increases impacted costs.
  • Q2 adj. EBIT was EUR 2.1m (1.6% margin) vs. EUR 4.8m/4.6m (3.6%/3.5%) Evli/cons estimates.
  • Q2 EPS was EUR -0.02 vs. EUR 0.1/0.1 Evli/cons.
  • Guidance: consolidated revenue is expected to increase from 2018. Adj. EBIT is expected to improve clearly compared to 2018.
  • The company has launched an efficiency improvement program that aims at annual cost savings of approx. EUR 17m.

Pihlajalinna - Focus on profitability

08.08.2019 | Preview

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.

Pihlajalinna - CMD notes

20.05.2019 | Company update

Pihlajalinna hosted the 2019 CMD last Friday. The focus of the event was on increased health and social care costs, cooperation of private and public sectors as well as the digitalization of health care. Pihlajalinna did not make any changes to its ‘19E guidance nor its long-term financial targets. We maintain our rating “Buy” with TP of EUR 13.

Need of new solutions for arranging services

The finances of Finnish municipalities have continued to deteriorate and municipalities are forced to find new solutions to balance their increased health and social care costs. Cooperation with private sector is no longer purely voluntary. As Pihlajalinna stated in Q1, municipalities’ activity has increased after the failure of the SOTE reform, despite of the restriction law.

New opportunities on occupational healthcare

Pihlajalinna has been able to use its network to expand services across the country. The company 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. The company targets to expand in basic-level specialized care and non-urgent specialized care as the public sector has made cuts in operations and centralized specialized care in fewer units.

Focusing on profitability improvements in 2019E

Pihlajalinna’s plan is to improve its profitability by organic growth, increasing cross-selling, and by addressing profitability issues in the new medical service centers. Pihlajalinna will also improve its customer service experience by bringing new digital solutions to the market, which will also be a significant profitability driver in the future.

Guidance for 2019E intact

Pihlajalinna reiterated its guidance for 2019E; to increase its revenue and EBIT in 2019E from 2018 levels. The company did not make changes to its long-term targets and expects EBIT % of 7% in long-term. We keep our estimates intact. We maintain our rating “Buy” with TP of EUR 13.

Pihlajalinna - ‘19E focus on improving profitability

06.05.2019 | Company update

Pihlajalinna’s Q1 earnings were close to expectations. After a weak ’18, the company was able to improve its profitability and increase its organic growth. Pihlajalinna’s focus in 2019E is to take further actions to improve its operating profit. We keep our rating “BUY” with new TP of EUR 13 (12).

Profitability improvements continue in 2019E

In Q1, Pihlajalinna improved its operating profit with adjusted EBIT margin of 3.0% (-0.1% in Q1’18). Revenue growth was supported by new customer relationships in occupational healthcare but also by the new partnership with Fennia. Organic growth was 2.8% in Q1. In 2019E, the company continues focusing to improve profitability especially in clinics with weaker profitability levels. The company will also strengthen its services locally in mobile. Pihlajalinna’s interest is to expand its cooperation with municipalities and expand its occupational healthcare network in ‘19E.

SOTE collapsed but change is still needed

The health and social services reform collapsed in March. It is still unsure, whether the new government will start again with the SOTE reform but municipalities still need to find solutions for finding balance of financing health and social services. After the collapse of the reform, Pihlajalinna sees activity from municipalities has increased and expects that there is demand for their healthcare services.

We keep our rating “BUY” with new TP of EUR 13

Pihlajalinna targets to increase its revenue and EBIT in 2019E from 2018 levels. We foresee EBIT of EUR 24m (4.5% margin) and EUR 25m (4.6% margin) in ’19-‘20E. As Q1 revenue was above our expectations, we have increased our revenue expectation in 2019E to EUR 525m (previous EUR 515m). On our estimates, Pihlajalinna trades in 2019-2020E EV/EBITDA multiple of 7.3x and 5.9x. which translates into 23% and 26% discount compared to peer group. We maintain “BUY” with TP of EUR 13.

Pihlajalinna - Q1 revenue above our expectations

03.05.2019 | Earnings Flash

In Q1’19, Pihlajalinna’s revenue amounted to 132.5m vs. EUR 126m/128m Evli/cons estimates, while adj. EBITDA landed at EUR 12.6m vs. EUR 13,0m/13,0m Evli/cons estimates. Organic growth improved y/y. Revenue growth was supported by new customer relationships in occupational healthcare and the insurance company partnership with Fennia.

  • Q1 revenue was EUR 132.5m vs. EUR 126m/128m Evli/cons estimates. Revenue grew 11.2 y/y%.
  • Growth from M&A was 8.3%. Most significant M&A transactions were the acquisitions of Doctagon and the Forever fitness center chain as well as the acquisition of Terveyspalvelu Verso.
  • Q1 organic growth was 2.8% (EUR 3.4m)
  • Q1 adj. EBITDA was EUR 12.6m (9.5% margin) vs. EUR 13,0m/13,0m (10.3%/10.1%) Evli/cons estimates. Adj. EBITDA increased by 81.6% % y/y. Profitability improved significantly especially in occupational healthcare services, public sector specialized care and private clinic operations.
  • Q1 adj. EBIT was EUR 3.9m (3.0% margin) vs. EUR 5,0m/4,7m (4,0%/3,7%) Evli/cons estimates.
  • Guidance for 2019E: Revenue is expected to increase from the 2018 level and adjusted EBIT is expected to clearly improve from last year.

Pihlajalinna - Profitability expected to increase in Q1

25.04.2019 | Preview

Pihlajalinna will report its Q1 earnings on May 3rd. As before, profitability and new contract pipeline are of interest but also comments on the failure of SOTE reform and its impacts. Our estimates reflect the IFRS 16 changes. We keep our rating “BUY” with target price of EUR 12.0 ahead of Q1.

No major pipeline changes in Q1

Pihlajalinna expects its profitability and organic growth to increase in 2019E. The company will continue its expansion especially into regional capitals in 2019E-2020E. However, the failure of SOTE reform keeps the pipeline uncertain as municipalities’ eagerness to strike new contracts is impacted by SOTE. Provision of occupational healthcare services for Stora Enso started in Jan 2019 (we estimate value at EUR ~4m).

Acquisition of fitness centers continued in Q1

Pihlajalinna has expanded its services into wellbeing and preventative occupational healthcare. The company bought Forever fitness center chain in Feb 2018. The acquisition of Leaf Areena in Turku further expanded Pihlajalinna’s wellbeing services and the first Forever LITE fitness center was opened in Tampere in late 2018. Following the strategy, Pihlajalinna acquired FIT1 chain in Q1’19, adding five new fitness centers to its portfolio.

Retaining “Buy” with TP of EUR 12 ahead of Q1

Pihlajalinna published its restated financials for 2018 with IFRS 16 changes. Right-of-use assets increased by EUR 86.7m and interest-bearing debt by EUR 88m. We have updated our model to be in line with the restated figures but kept the underlying estimates unchanged. We expect Q1 revenue of EUR 126m and adj. EBITDA of EUR 13 (10.1 % margin). We expect profitability to increase in 2019E from last year’s weaker results caused by high start-up costs, transfer and M&A fees as well as high public specialized care costs. Our rating and target price (“Buy”, TP EUR 12) are unchanged ahead of Q1.

Pihlajalinna - More favorable outlook for 2019E

25.02.2019 | Company report

Pihlajalinna’s organic growth, profitability and outlook for 2019E improved towards the end of 2018. The new contract pipeline improved somewhat, and clarity on SOTE in the coming weeks might increase activity in the municipality field, further boosting the pipeline. We think valuation looks attractive considering the recovery in margins and somewhat more promising outlook.

Profitability recovered to reasonable levels

Pihlajalinna’s profitability weakened in 2018 with to weak H1, but recovered to reasonable level in H2 as cost savings from co-determination negotiations kicked in, negative EBITDA-contribution from new clinic openings contracted and as organic growth turned back to positive territory in H2 with insurance revenue drop levelling off. Improved performance of H2 supports the outlook for 2019E, for which co. guides adj. EBIT to improve significantly. While competition has increased in certain service areas and cities, Pihlajalinna’s altered expansion plan and OP’s retreat from expansion plans should reduce risk of further capacity increases burdening profitability in the mid-term.

Growth prospects somewhat brighter; clarity on SOTE needed

Pihlajalinna started production of residential services in Laihia in Sep 2018. Provision of occupational healthcare services for Stora Enso started in Jan 2019. Additionally co. has been negotiating with Laitila, Ruovesi and Kristiinankaupunki, although at present each remain undecided. Overall, municipalities’ eagerness to strike new contracts remains impacted by the lack of clarity on how the SOTE reform turns out. Improved clarity on SOTE in the coming weeks might improve activity in the municipality field. Additionally, Pihlajalinna’s geographical reach has expanded in 2017-2018, improving its positioning to win new business.

“Buy” with TP of EUR 12 intact

On our estimates Pihlajalinna is now valued 8.4x EV/EBITDA in FY19E, which translates into 10% discount to its own 3yr NTM historical average (9.3x) and to 16% discount to the peer group. We think valuation looks attractive considering the recovery in margins and a more promising outlook since H2’18. We retain “Buy” rating with TP of EUR 12. Our TP values the shares 9.0x EV/EBITDA on 2019E estimates, close to 3yr historical avg (9.3x).

Pihlajalinna - Limited surprises

18.02.2019 | Company update

Pihlajalinna’s Q4 financials were close to estimates and guidance did not surprise. While new outsourcing contracts from previous or ongoing negotiations remains uncertain, the expanded geographical reach should improve prerequisites for growth in other areas as well. We think valuation continues to look attractive. We retain “Buy” rating with TP of EUR 12.

Profitability at reasonable level in Q4

Pihlajalinna’s adj. EBITDA margin improved y/y in Q4, after improving to flat y/y level in Q3 from weaker H1. However, of the EUR 2.6m y/y adj. EBITDA improvement EUR 2.4m was explained by improved profitability in public specialized care, which seemed to be largely due to service provider refunds from hospital districts related to cost accruals. Amount of these refunds has fluctuated a lot historically. Profitability thus looked better than it was in underlying terms, but it was still at a reasonable level in our view.

Not much new to tell of the new contract pipeline

Pihlajalinna has been in negotiations over new potential contracts with Laitila, Ruovesi and Kristiinankaupunki. While decisions from some of these were expected by the end of 2018, each remains undecided. Overall, municipalities’ eagerness to strike new contracts remains impacted by the uncertainty related to the SOTE reform. Activity could increase if SOTE fails in the coming weeks, but overall visibility for how municipal activity develops is not great, in our view. Yet with the expanded clinic network the company should be better positioned to win new business for example in occupational healthcare, in our view.

Retaining “Buy” with TP of EUR 12

On our estimates Pihlajalinna trades 7.7x and 6.8x EV/EBITDA in FY19-20E, respectively. We think valuation continues to look attractive. We retain “Buy” rating with TP of EUR 12.

Pihlajalinna - Little surprises

15.02.2019 | Earnings Flash

Pihlajalinna’s Q4 revenue and adj. EBITDA were close to both our and consensus estimates. Profitability improved y/y, but looks to be largely explained by service provider refunds, which have involved a lot of fluctuation historically. Organic growth remained positive (+1.3%) from Q3. Dividend proposal is EUR 0.10 per share, marginally better than expected. Guidance for 2019E looks to be largely reflected in consensus: revenue is to improve while adj. EBIT is to improve clearly. Overall, the Q4 report looks just fine.

  • Revenue was EUR 127m vs. EUR 127m/125m Evli/cons estimates. Revenue grew by 17.6% y/y, of which 16.3% was due to M&A. This implies organic growth of +1.3%. Organic growth was similar to Q3 (+1.1%).
  • Adj. EBITDA was EUR 11.1m (8.7% margin) vs. EUR 10.9m/11.2m (8.6%/8.9%) Evli/cons estimates. Adj. EBITDA improved by EUR 2.6m y/y, of which EUR 2.4m looks to be explained by service provider refunds from hospital districts for public sector specialized care cost accruals. Volumes and profitability of clinic and surgical operations were lower y/y, due to the competitive situation and patient guidance by insurance companies. New clinics still had a negative EBITDA contribution (as expected), but this now lower than in previous quarters at EUR -0.4m in Q4.
  • Dividend is EUR 0.10 per share vs. EUR 0.08 Evli and EUR 0.09 consensus.
  • Guidance for 2019E looks to be largely reflected in consensus: Revenue will increase and adj. EBIT will improve clearly.

Pihlajalinna - Profitability and pipeline in focus

29.01.2019 | Preview

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.

Pihlajalinna - Upgraded to “Buy”

02.11.2018 | Company update

Pihlajalinna profitability turned to positive in Q3. Growth prospects now also look better, with new contracts and a more promising pipeline. We think valuation is now attractive against improving growth and profitability prospects. We upgrade to “Buy” (“Hold”) with TP of EUR 12.

Profitability turned to the better

The main surprise in Pihlajalinna’s Q3 report was better than expected profitability. Adj. EBITDA margin was at last year’s level in Q3, after weakening clearly in H1. Organic growth also turned positive (+1%), after being negative in H1 (-2%). Profitability is still not at the targeted level, but the worst should now be behind. Management sees potential to improve profitability both in the private and public sides of the business.

Growth prospects now look brighter

Pihlajalinna started production of residential services in Laihia in Sep 2018, with an annual value of about EUR 5m. Provision of occupational healthcare services for Stora Enso will start in Jan 2019 (we estimate value at EUR ~4m). Negotiations for provision of residential services with about EUR 5m value are ongoing in Laitila. Ruovesi is considering joining Pihlajalinna’s existing Mänttä-Vilppula contract, with potential value of some EUR 15m, and a decision from the Kristiinankaupunki tendering should arrive by the end of the year.

Less risk of profitability pressure

Pihlajalinna altered its expansion plan and no longer expects to open new surgical units this or next year. Expansion will be primarily based on M&A and potential municipal projects, rather than new larger clinic openings. Additionally, OP recently announced its retreat from expansion plans. These reduce the risk of added capacity burdening profitability in the mid-term.

Upgraded to “Buy” (“Hold”), TP intact at EUR 12

On our estimates Pihlajalinna now trades 8.6x and 7.2x EV/EBITDA in FY19-20E, which translate into 12-17% discount to the peer group. We consider valuation attractive against improving growth and profitability prospects and upgrade to “Buy” (“Hold”) with an intact TP of EUR 12.

Pihlajalinna - Profitability beats

01.11.2018 | Earnings Flash

Pihlajalinna’s revenue is in line, but profitability improved more than expected. Organic growth also now turned positive and was +1.1%, after being negative in H1. Guidance for 2018E is intact.

  • Revenue was EUR 116m vs. EUR 117m/116m Evli/cons estimates. Revenue grew by 17.0% y/y, of which 15.9% was due to M&A, implying organic growth of +1.1%. Organic growth was -1.8% in H1.
  • Adj. EBITDA was EUR 10.7m (9.2% margin) vs. EUR 9.6m/9.7m (8.2%/8.4%) Evli/cons estimates. Adj. EBITDA improved by EUR 1.7m y/y, of which EUR 1.6m came from M&A. Profitability was hurt by EUR -0.8m start-up costs related to new clinics, while we had incorporated EUR -0.6m. Profitability excl. the clinics’ impact thus improved more than we expected, supported by profitability improvements in occupational healthcare and higher volumes of diagnostics.
  • Guidance for 2018E is intact: Revenue will increase clearly from 2017 level (2017A: EUR 424m) especially due to M&A transactions. Adjusted EBIT is expected to fall short of the 2017 level (2017A: EUR 20m).

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Company Facts

Financial targets

Long-term targets: EBIT margin of 7 percent and net debt/EBITDA below 3x

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