Biohit: Safety margin available again

Translation: Original published in Finnish on 3/2/2025 at 12:52 noon EET.

Biohit's share price has fallen and the risk/reward ratio has become attractive again. We therefore raise our recommendation to Accumulate (was Reduce) and reiterate our target price of EUR 3.2. There has been no change in the company's outlook, so we are not revising our forecasts in this update. We expect Biohit to continue its defensive profitable growth in the current year, driven by the new product launches announced at the beginning of the year, the opening of a new market in the middle of the year and new products to be distributed. Uncertainties include the situation in the Middle East and the development of profitability as a result of changes in the sales mix.

Growth drivers for the year ahead

Biohit's guidance for the current year is 15.7-17.1 MEUR in revenue and 10-20% in operating profit. The top-line guidance represents 10-20% year-on-year growth and is below the lower end of the 15-20% growth target of the company's strategy. The caution is based on the escalating situation in the Middle East, which increased payment uncertainty at the end of last year. In the financial statements, Biohit estimated that uncertainty would continue in the first half of the year and prepared for this by lowering the lower end of the guidance. Our forecast for 2025 is at the upper end of the range at 17 MEUR. In addition to sales of the existing product portfolio, we expect growth from the recently launched new sample handling product and the new distribution partnerships announced earlier in the year. Biohit also said in its Q3'24 IR blog that it expects another major market opening this year, in mid-2025. We believe this could be a distribution agreement in a new geographic area. At the time of the financial statements, the company confirmed that the plan and schedule remain unchanged, so the opening will bring growth in our forecasts from H2'25 onwards. Despite the known growth drivers, it is difficult to predict the exact top-line development, so the forecast is subject to a relatively high degree of uncertainty, despite the defensive nature of revenue.

Profitability is already at a good level, but there are question marks about the future

Biohit's EBIT margin last year was 17%, in line with the profitability of mature companies in the industry. Given Biohit's small size and high growth targets, we believe this is an excellent level. Profitability clearly exceeded our forecast last year. Going forward, however, we expect some pressure on profitability. The profitability of Biohit's own manufacturing is significantly higher than that of OEM sales. We expect more growth from OEM sales in the future, which will put pressure on the overall sales margin. Another factor putting pressure on the sales margin is the distribution agreements announced earlier in the year. We believe it makes sense to distribute relevant products from other manufacturers through Biohit's channels. On the other hand, its profitability is lower than those mentioned above, so the relative increase in sales of distribution products should lead to a decrease in relative profitability.

Valuation turned attractive again

The P/E ratio for the stock is 19x with strong growth projections for 2025. The EV/EBIT multiple, which takes into account the strong balance sheet, is 14x, which is around the midpoint of our estimated fair multiple range of 12x-18x. The multiples are well below global large-cap peers (2025 EV/EBIT 20x), which we believe is excessive despite Biohit's higher risk profile. In our view, the stock is also reasonably priced in terms of EV/S (2025 EV/S: 2.1x) and cash flow, and the valuation includes a safety margin. As the share price has fallen, we believe that the risk/reward ratio has become attractive again.