Pihlajalinna - EBITA muted in the short-term

Pihlajalinna’s guidance downgrade wasn’t very big news as costs have remained relatively high over the course of this year. Demand is strong, but short-term upside is now more limited due to the uncertainty around FY ’23 improvement.

Q4 EBITA not to improve that much

Pihlajalinna downgraded its guidance. Top line will still increase substantially, but FY ‘22 adj. EBITA is to decrease relative to the EUR 37.3m comparison figure. The earlier guidance suggested flat EBITA, and we previously estimated the figure at EUR 36.5m. We revise our Q4 EBITA estimate down to EUR 9.0m and hence now see the FY ’22 figure at EUR 33.5m. We note the EUR 7.8m figure seen in Q4’21 was weighed down by some EUR 2m in extraordinary high service costs within complete outsourcing contracts, and hence Pihlajalinna should be able to achieve at least flattish y/y profitability development in Q4’22.

EBITA is bound to improve next year

Pihlajalinna has scaled up its capacity over the past year; volumes and revenue have followed pretty much according to plan. Pohjola Hospital burdened profitability in H1, while new clinic ramp-ups continued to drag Q3 results. Personnel absence-related costs moderated a bit in Q3 but were still EUR 1m. Lower Covid-19 services revenue was another headwind. Pohjola Hospital cost synergies have already been realized and the units are profitable, but there’s still work to be done in driving higher capacity utilization rates across the network and especially within high value-added categories such as surgery procedures. Demand continues at a high level and Pihlajalinna has scope to raise prices; in our view profitability is set to follow up with top line next year, however we revise our FY ’23 profitability estimates down by EUR 3m.

Uncertainty around FY ’23 improvement pace limits upside

We make no changes to our revenue estimates as in our view the update concerns the cost levels which have continued relatively high. Pihlajalinna is valued at 14x EV/EBIT on our FY ’23 estimates, which is still not a high figure relative to peers while we estimate the respective EBIT margin almost 300bps below peers’. Long-term potential should remain large, but uncertainty around costs limits upside at least in the short-term perspective. Our updated TP is EUR 10 (11); we retain BUY rating.

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