Pihlajalinna - Profitability in focus

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.

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