Pihlajalinna - Strategy and EBIT on track

Pihlajalinna reports Q4 results on Fri, Feb 18. We make small positive revisions to our Q4 estimates as we expect Covid-19 services to have remained high due to Omicron, but we don’t expect Pihlajalinna to guide much more than flat EBIT for FY ’22 as M&A integration has barely begun.

We make small upward revisions to our Q4 estimates

Pihlajalinna’s EBIT continued to improve in Q3 despite an increase in outsourcing costs for which the company hadn’t yet received much compensation. The Finnish virus situation worsened again in Q4, and we believe Omicron has had a slight positive net effect on Q4 top line and EBIT; we previously expected Covid-19 services revenue to decline some in Q4 but we now estimate it to have remained pretty much flat q/q. We update our Q4 revenue estimate to EUR 156.4m (prev. EUR 153.9m) and thus expect y/y growth to have remained around 14%. We estimate y/y EBIT improvement to have steepened a bit in Q4 and now estimate Q4 EBIT at EUR 9.2m (prev. EUR 8.9m).

The acquisition will limit EBIT guidance in H1’22

Pihlajalinna has just completed the acquisition of Pohjola Hospital, a chain with a focus on orthopaedics and some EUR 60m in revenue, which make it a target of reasonable size and complementary fit for Pihlajalinna. The target turned a loss of EUR 10m in terms of EBIT in FY ’20 due to a dip in volumes; the losses might have narrowed somewhat already in FY ’21, however this hadn’t happened during the first 4 months of the year, but we expect losses or at least margin dilutive impact in H1’22. Margin accretion should occur in FY ’23 as insurance customers drive volumes and Pihlajalinna achieves cost synergies. We expect more specific updates to financial targets either in connection with the Q4 report or later during the spring. We continue to expect meaningful EBIT upside beyond this year and last, although we believe Pihlajalinna will not guide much more than flat or slightly improving EBIT for FY ’22 at such an early point when the target’s integration has only started.

Both margins and multiples remain on the modest side

Our view is unchanged as Pihlajalinna trades ca. 6.5-8.0x EV/EBITDA and 13.0-16.5x EV/EBIT on our FY ’21-22 estimates. The multiples are well below peers’ while margins remain at relatively modest levels. We retain our EUR 14 TP and BUY rating.

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