Nexstim H2'24: Solid growth in line with expectations

Translation: Original published in Finnish on 2/28/2025 at 8:00 am EET.

Nexstim's H2'24 was in line with our expectations, with revenue up 17%. The result was at the level of the comparison period, burdened by non-recurring legal and financial expenses. Our forecasts for the coming years remain largely unchanged as the company is progressing in line with expectations. Nexstim's guidance for 2025 is for revenue growth and improved EBIT, without a more precise numerical range. We expect a significant jump in growth and results, supported by new collaboration agreements. The fulfillment of these forecasts is subject to the implementation of the Sinaptica agreement, which is still at the stage of a letter of intent. We reiterate our Reduce recommendation and raise our target price to EUR 9.0 (previously 8.5) based on the upgraded long-term forecasts.

H2 showed growth and was in line with forecasts

Nexstim's H2 revenue was 5.6 MEUR, an increase of 17% year-on-year and in line with our forecast (5.5 MEUR). This growth was mainly driven by sales of the new NBS 6 system, which was reflected in higher revenue from therapy systems. Recurring revenue grew slower than system sales (Diagnostics +16.5% and Therapy +11.3%). Full-year revenue was 8.7 MEUR. Nexstim's guidance for 2025 is to increase revenue and improve EBIT. Achievement of the guidance seems certain in advance, with a growing installed system base bringing recurring revenue and a sales margin of 4 MEUR secured by the Brainlab agreement.

Earnings slightly below expectations

In H2, EBITDA landed at 0.8 MEUR and EBIT was 0.3 MEUR. The figures were slightly below our forecasts due to lower-than-expected sales margins and slightly higher-than-expected operating expenses. However, based on management's comments, the lower sales margin in H2 was mainly due to sales mix, so we do not think there was anything really surprising in terms of profitability. Cash flow from operating and investing activities was 0.1 MEUR. However, the significantly lower working capital strengthened the cash flow by 0.6 MEUR, so the cash flow adjusted for the change in working capital was still negative. Nexstim's liquidity is in good shape thanks to a high level of cash and accounts receivable. The company still has net debt, but the overall balance sheet position is solid due to the earnings turnaround.

Estimates for the coming years remained unchanged

We expect Nexstim to achieve a significant earnings turnaround this year. The turnaround is based on profitable growth in current revenue, revenue and guaranteed coverage from the Brainlab agreement and significant revenue from the Sinaptica agreement. Of these, the first two are relatively well established and the latter is more uncertain. Our near-term estimates remain unchanged. We slightly increase our long-term forecasts based on the company's good progress last year and new openings.

No material changes to the valuation

With our strong growth projections for this year subject to some uncertainty, the EV/S ratio is 4.6x, above the midpoint of our 3-5x range. We consider the multiple to be neutral or slightly high given the forecast risk associated with the binary nature of the Sinaptica and Magnus Medical deals. These agreements represent a significant portion of Nexstim's projected cash flows. We do not yet use earnings multiples in our valuation as the sustainable earnings level is still unknown. Based on the multiples, we believe that the risk/reward is slightly lacking. We also see a lot of potential in the stock if there is a positive development in the treatment of Alzheimer's disease.