Nightingale Health H2’22 on Thursday: Risks of delayed growth elevated
Translation: Original comment published in Finnish on 9/26/2022 at 6:04 am.
Nightingale, a provider of preventive healthcare technology, will publish its fiscal year financial statements (7/1/21-6/30/22) on Thursday at 9 am. In the early part of the year, Nightingale has continued to commercialize and develop its technology on a broad front, but the achieved business has still been below the company's targets. In the short term, we feel that the conditions for strong growth are starting to look clearly weaker than previously expected, and there is initial downward pressure in our estimates. We will especially look for credible steps in the report to build a large volume business in the near future. However, the market is not expecting miracles from the report, as the share pricing has fallen below the balance sheet value (2022e P/B 0.9x) which mainly consists of cash.
Revenue is still only forming, growth investments depress profitability
We estimate that H2 revenue will have grown briskly from low base figures to EUR 1.7 million. Nightingale announced in July that it had reached an order book of EUR 3.8-4.0 million (objective: 5 MEUR), so there are hardly any big surprises expected in revenue. Revenue growth has relied on the Mitsui/Welltus (Japan) and Terveystalo partnerships launched by the company about a year ago, as well as the Livit service provided directly to consumers. The Physitrack partnership (UK/Germany/Nordic countries), announced in June, does in practice not make the figures for the period, in addition to which the expansion to genetics through the Negen acquisition in early 2022 is also clearly a forward-looking move. We expect profitability to be clearly in the red and EBIT to be EUR -5.4 million. The weak profitability we expect is explained by Nightingale's growth strategy that is in the investment phase and the low revenue. The company's fiscal year ends on June 30 and, therefore, differs from the calendar year. In terms of the figures, the main interest is the development of the company's net cash (12/31/21: ~101 MEUR).
Business growth on a gentler trajectory than expected: downward pressure in estimates
The strong growth we have estimated for Nightingale has been based on integration of the company's service into existing laboratory sample flows, as well as achieving a large number of free users and their monetization. However, the small 200,000 sample analysis agreement with the Estonian biobank signed at the beginning of 2021, is, to our understanding, the only partnership so far with this model. Nightingale's major partnership agreements (Terveystalo, Mitsui/Welltus and Physitrack) have relied more directly on commercial use. These have not yet shown signs of progress toward significant business activity, which is also indicated by the company's order book being below targets. With the delay in the FDA approval that would support the US expansion, a significant partnership in the US also seems to slip further into the future. Nightingale’s order book target for the fiscal year 2023 should be about EUR 14 million (2022: about 3.8-4.0 MEUR) for our revenue estimate (8.9 MEUR) to be possible. Considering this it seems there is significant downward pressure in our growth estimates if the report and management comments do not provide credible steps for the development of large volume business in the near future. We note that short-term growth is secondary to Nightingale’s growth story, even if a credible path to strong growth is important for the story to progress.
The market does not seem to believe in strong growth
Nightingale’s valuation has continued in a deepening decline from the IPO level (EUR 6.75 per share) and the company is priced below its balance sheet value which mainly consists of cash (2022e P/B 0.9x). To some extent we believe the underlying bear market for growth companies has an impact, but we also feel the market is highly suspicious about a large-scale success of the company commercializing its technology. In terms of share pricing we do not believe much expectation is directed at the report at this stage.
Login required
This content is only available for logged in users
Nightingale Health
Nightingale Health operates in medical technology. The company specializes in the development of medical devices. The product portfolio is broad and includes platforms and services in blood tests that are used for disease prevention purposes. In addition to the main business, service and associated ancillary services are also offered. The business is run globally with the largest presence in Europe.
Read more on company pageKey Estimate Figures25.02.2022
2021 | 22e | 23e | |
---|---|---|---|
Revenue | 2.1 | 3.0 | 8.9 |
growth-% | 31.88 % | 43.68 % | 197.16 % |
EBIT (adj.) | -5.3 | -10.2 | -13.7 |
EBIT-% (adj.) | -253.63 % | -339.82 % | -154.69 % |
EPS (adj.) | -0.13 | -0.18 | -0.23 |
Dividend | 0.00 | 0.00 | 0.00 |
Dividend % | |||
P/E (adj.) | - | - | - |
EV/EBITDA | - | - | - |