I’ve been looking at the company for a while now and today I initiated a position in an industrial I argue has a conservative pricing.

Summary: I find the current share price to be too conservative for this quality company and expect that the return in the coming year will come from multiples expansion (from PE 16.6 to 18), dividend of 3.5% (EUR 0.75 / 21 EUR per share) and future earnings growth (5 year historic earnings growth of CAGR 33%).

About the company: Valmet Oyj is a Finnish company with an industrial history over 200 years. As a standalone listed company, the history stretches only back to 2013, when it was spun off from Metso Corporation. Valmet is the leading global developer and supplier of technologies, automation and services for the pulp, paper and energy industries.

Business overview:

The company has four segments:

  • Services
  • Automation
  • Pulp and Energy
  • Paper
Valmet segment overview

At Valmet, Services and Automation are considered to be “stable” businesses, as they represent rather stable and slightly growing markets that are driven by the size of the installed base and mill operating rates. Currently, the increasing consumption of board, tissue and pulp in particular, as well as demand for bioenergy, are boosting production growth, which is creating new demand for Valmet’s services and automation (source: Valmet Investor Relations)

Pulp and Energy and Paper business, such as board, paper and tissue machines, pulp mills, and biomass power boilers are referred to as “capital” businesses. They are driven by new investments in machinery and mills, which makes these businesses more cyclical and volatile compared to the more stable services and automation businesses (source: Valmet Investor Relations)

Market leader in the growing market of converting renewables

Pulp & Paper industry: Paper and packaging experiencing several “megatrends”, which are important demand drivers for new packaging and consumer board products.

  • Urbanisation,
  • Digitalisation (headwind for traditional paper and print industry)
  • A rapidly growing global middle class,
  • Eco awareness
  • Population growth
  • Booming e-commerce

Dividend

The current dividend yield is ~3.0 % and has increased since the IPO in 2013. The current payout ratio is 50.2% and the ratio has declined since the IPO, which is a result of increased earnings and growth. Net debt / EBITDA is 0,69 and the net debt is 7.7 % ( Net debt shows how much net interest-bearing liabilities in the company in relation to total assets ). The dividend safety is satisfactory, and I expect an increase for 2019 to EUR 0.75 per share (increase of 15%).

Valmet dividend history and payout ratio

Valuation

The stock is currently trading at P/E 16.6 (P/E 2020E is 13.7 Source: Bloomberg consensus) which is fairly conservative for this company on a historical basis and compared to peers (e.g. ABB, Honeywell and other industrials). I expect a return on my investment of ~45 % and a share price of EUR 30. This is based on the current conservative pricing, which gives room for multiples expansion (based on historic multiples and peers), combined with expected earnings growth and a dividend yield of 3%.

Technical analysis: The share price bottomed out at 15.6 EUR and the trend is upwards. Support is found around 19.8 EUR and resistance at 21.5 EUR. 10 day MA has crossed 50, 100 and 200 days MA and 50 days MA has crossed 100 and 200 days MA.

Investment Checklist:

Valmet scores 86 points in my investment checklist, which is above my treshold of 80 points.

Investment Checklist Valmet

Risks:

  • Lower pulp prices may reduce the willingness to invest in Valmet’s products
  • Weaker economic outlook in the overall economy
  • Climate change may cause increased damage to the forest from the bark beetle in Central Europe.
  • Project-specific risk (project cost estimation, scheduling, quality and performance)

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Not overlooked, nor undervalued. This is not a case for value investors, but a perfect match for dividend growth investors. I purchased my first shares in the company on 2 December 2019 for USD 184.15 per share.

About the company:

Visa, Inc. is a global payments technology company working to enable consumers, businesses, banks and governments to use digital currency. Visa operates in a four party model, which includes card issuing financial institutions, acquirers and merchants. We are not a bank and do not issue cards, extend credit or set rates and fees for account holders on Visa products (Source: Visa Inc. 10-K filing 2018).

Visa has a current market cap of USD 394 billion and is traded on NYSE. In the latest quarter released on 24 October 2019 the growth in underlying business drivers remained strong, primarly driven by growth in payment volumes and processed transactions. The company’s growth prospects are good in the coming years and the expected growth in EPS per share in 2020 is in the mid-teens.

Source: Visa Inc company presentation 24 October 2019

Megatrend:

The company benefits from the ongoing shift away from cash payments and over to digital payments. Digital payments continue to grow as a percentage of all payments world-wide and Visa is one of the key beneficiaries. Societies become more and more cashless and with an increasing standard of living the growth in years to come will be substantial.

Hard to use cash when shopping online
Shift from cash to digital payments is ongoing

Dividend:

Visa has increased its dividend since the IPO in 2008 making it a Dividend Contender. The current dividend yield is 0.65%, but the latest dividend hike was 20 % and it is expected that the dividend will increase by double digits in the coming years. Current pay-out ratio of ~20 % and strong growth in earnings per share will eventually materialise in future dividend hikes.

Source: The Motley Fool

Valuation:

Both Visa and its closest peer, Mastercard Inc, has experienced a strong share price performance the past five years, with Mastercard leading the way. Because of the strong share price performance, the company trades at a premium relative to its historical multiples. During the past decade, the highest EV / EBITDA of Visa was 27, the lowest was 8.8 and the median was 17.1. The current EV / EBITDA is around 26. I believe the valuation is justified due to the strong track-record of the company

Comparing Visa and Mastercard share price performace
Both Visa Inc and Mastercard Inc has solid share price performance the past five years

Risks:

  • When profitability is high in a industry with few competitors it attracts unwanted attention from others who want a piece of the action. New competition will press volume and margins down until the superprofit is gone. Cryptocurrencies and e.g. ApplePay has entered the market and tries to shift volumes from traditional payment methods to the digital sphere. This shift will in the years to come be faster and the continuous evolution of new technologies and business models may pose a risk to the company.
  • Regulatory risk: Regulatory risk is the first risk factor presented by the company in their annual report and the increased focus on compliance, anti-money laundering and regulation may pose a threat to the company. Lack of competition in the industry (i.e. duopoly with MasterCard) may pose a risk to the company due to increased oversight and regulation of the global payments industry.

Disclaimer: I am long Visa Inc

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Established in Arendal in 1962, Kitron has a long track record within the manufacturing of high-complexity, high-reliability electronic products. It is expanding its global presence with manufacturing facilities in Norway, Sweden, Lithuania, Germany, Poland, China and the U.S. Its customers outsource manufacturing of electronic circuit boards and related services to improve flexibility, cost efficiency, accuracy and innovation. The company has a reputable customer base, including companies like Kongsberg Gruppen, Northrop Grumman, Saab, Volvo, Lockheed Martin, ABB.

Segment overview

The company operates within five different segments; Defence/aerospace, Energy/telecoms, Industry, Medical devices and Offshore/marine. Below is an overview of split in revenues per segment.

Source: Company presentation Q3

Dividends

The company’s dividend history is not too long, but they have paid a consecutive dividend the past five years and has a high dividend growth rate (extraordinary dividend of 0.2 NOK paid out in 2018 based on 2017 financials). Kitron’s dividend policy is to pay out an annual dividend of at least 50 % of the company’s consolidated net profit before non-recurring items. The EPS as per 30 September 2019 is 0.55 NOK and it is estimated that the full-year EPS will be around 0.8 NOK.

Today the current yield is around 4.3% (share price 9.38 NOK), but I expect that the dividend for the fiscal year 2019 to be 0.50 NOK; implying a forward yield of 5.3%. The payout ratio is approximately 55%, which I believe is OK for this type of company.

Source: Borsdata.se

Growth and EBIT-margin

On the latest Capital Markets Day (CMD) the company launched a revenue target for 2025 of NOK 5 billion and EBIT margin of 7%, with potential M&A adding upside. This implies an EBIT’25e of NOK 350m, representing a solid CAGR’19-25e of 10% (Source: Kitron CMD and Pareto Equity Research).

Source: Kitron CMD
Source: Kitron CMD

Valuation

The stock price for Kitron ASA has since a low of 1.51 NOK per share increased to today’s price of 9.38 NOK per share. This increase is well justified due to the strong revenue growth and improving EBIT-margin, and there isupside potential if the company’s targets are reached. These are the key drivers for value creation for shareholders and one should expect accretive acquisitions going forward based upon the communication to the market by the management on the Capital Market Day.

Comparing EV/EBIT to its closest Nordic Competitors; NOTE AB and Scanfil Oyj, it is trading at a premium. EV/EBIT for Note is 11.6, while Scanfil trades at 10.3.

Source: Borsdata.se

Disclaimer: I hold a position in Kitron ASA.

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Sparebanken Vest is a Norwegian Savings Bank located on the west coast of Norway and is the third largest savings bank in Norway. It operates as an independent financial services group (not part of the Sparebank 1 – alliance) and it has a market cap of approximately NOK 6.4 billion and a strong focus on digital transformation.

Sparebanken Vest announced its intention to convert about NOK 2.4 billion of the primary capital to ECCs (equity capital certificates) that will be transferred to a newly established foundation. The offering to private investors included 10% bonus certificates (5% the first year and additional 5% the second year), which in my view made this offering a no-brainer to participate in. The only downturn was that the offering was oversubscribed and participants did not receive full-subscription.

Source: Managment presentation

The savings bank has the most desirable “Price to Book vs Return on Equity”-combination and I believe the management decision to focus on introducing customer dividends, improving liquidity in the trading of the ECCs and to continue their digital transformation from a boring savings bank to a digital financial services provider will cause a multiple expansion and hence increase the market cap. The low P/B compared to peers are unjustified and the gap will most likely narrow over time.

Source: Pareto Equity Research

Expected returns:

Expected total returns from holding the ECCs will consist of:

  • Earnings growth
  • Dividends (current yield of 5%)
  • Multiple expansion (higher PB)
  • Bonus ECCs of 10% for participants in the offering (over 2 years).

Risks:

  • Increased capital regulation
  • Regional risk, e.g. focused on the west coast of Norway

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This company is not what you would expect to find in my portfolio, nevertheless I bought a small holding in the company following a write-up by Focused Compunding and Vetle Forsland. I bought into the company at 3.05 NOK per share, subsequent to the company distributing a dividend of 4 NOK per share.

A little summary of what has happened in Nekkar (formerly know as TTS Group) in the past months. Currently the company is undergoing a major transformation as they have sold the majority of their former business to Cargotech, returned 4 NOK per share to equity holders (~55% of enterprise value), acquired Intellilift, changed name from TTS Group to Nekkar, and are now building a more diversified company from the ground.

The company is a micro cap with a total capitalisation of approximately 300 million NOK (~ 30 MUSD) and there is, in my opinion, a lot of uncertainty in their future business areas. Usually I buy solid companies with increasing dividends and a strong track-record, but this company does not tick the boxes in my dividend growth investment strategy. So, why did I buy into this company? In short, the company holds ~3 NOK per share in cash and the stock trades at 3 NOK. Basically, you get Syncrolift for free and access to their other business areas, even though I would argue that only focusing on the highly profitable company, Syncrolift, would be the best way going forward.

I’ll shortly go through the company’s business areas before looking at the financials.

Three business areas

Syncrolift – supplier of ship-handling solutions for shipyards. This is the gem in their portfolio, with stabile margins, 75% market share worldwide, upfront payments by customers totalling 2NOK per share and a all time high order backlog. The company operates in a highly cyclical industry, but the order backlog will ensure that the company is operational and recording revenues until end of 2022.

New Business Areas:

The new business areas will probably be given the most attention from the management in the upcoming years. Some segments will be financed by the profit and float from Syncrolift, but if Nekkar decides to aggressively pursue opportunities in these segments I do believe that the company will have to raise capital, and then most probable through the equity markets.

Aquaculture – this segment may be a drain on the company’s cash flow going forward, since they will be developing solutions for closed cage salmon farming. Their concept is developed in close cooperation with one of the industry’s largest, most successful and reputable companies but they have not yet disclosed the name of their partner.

Currently, this segment does not have any earnings to report and the info on their site is full of popular buzzwords such as “sustainable solutions”, “circular economy” and “digitalization”.

Digital: Intellilift – a 51% share was acquired in Q2 2019. Intellilift is a software company which develops control systems, data software and visualization tools for remote operations in the offshore energy business. The company is cash break-even on a running basis, but it is not showing positive earnings. Examples of present customers are top-tier end customers like AkerBP (drilling operations) and Ørsted (offshore wind).

Offshore Energy & Renewables – from their company presentation at the Pareto Conference on they have listed this as a new business area. Due to the net cash position, I believe the next acquisition by Nekkar will be in this segment. 100 million NOK is at the parent company level, which doesn’t present a opportunity to make a major purchase.

Financials:

I will only focus on the continued business, as the discontinued business is no longer relevant for the company. To review the Q2 – report there will be a lot of factors that disturbs the comparisons with previous periods (changes to IFRS 15 / 16, acquisitions and discontinued business). To explain all changes would be very messy, hence only focusing on status quo and Nekkar going forward will give you enough information to make an investment decision.

The profitable part of Nekkar has a solid platform with good margins and the possibility to grow in the aftersales market (services and upgrades). We see that the other segments does not contribute to an increasing EPS for the company at the moment and I’m hoping that the company will limit its acquisitions going forward, focus on Syncrolift and distribute remaining cash to shareholders. Though, I do not expect this to happen – especially not in the short run.

Source: Interim report Q2 – Nekkar ASA
Source: Interim report Q2 – Nekkar ASA

I finish this write-up with an exctract from the write-up by Focused Compounding “The company (Syncrolift) has a backlog that should keep them busy for the next 3-4 years. Some of that backlog is paid for in cash up front. So, here we had a company trading for less than net cash (though some of the cash was unearned revenue – also known as “float” – provided by customers) with no further needs for capital. Since Syncrolift is paid partially up front and has very little need for PP&E and things like that it would normally have negative invested capital in the business. This means that if Syncrolift were to grow revenue, earnings, free cash flow, etc. by about 6% a year – which is about what it probably has done over the last 25 years – it would be able to pay shareholders a dividend of literally everything it reported in earnings and that dividend would also increase at 6% a year. That’s the beauty of a business with no need for additional capital as it grows. As a shareholder, you get to have your cake and eat it too. Cake here being “free cash flow”

I bought my first shares on 25 January 2019 at 56.50 SEK per share. In this post you’ll find my investment thesis and the reason why I sold 25 % of my holdings in the company on 25 September 2019.

Updated 16 October 2019: Sold an additional 25 % of my original holdings in Eolus Vind at 122.6 SEK per share. My holdings in the company is now 50% of my initial position, and is now the third smallest holding in my portfolio.

Updated 17 January 2020: Sold remaining position in Eolus Vind AB at 113 SEK per share. Holding period 1 year and it became a double-bagger in my portfolio. I sold my position to make room for a new company in my portfolio, upside potential in Eolus is now limited with few projects in pipeline (primarily Wind Wall project and Øyfjellet), cost over-runs on latest projects delivered, increased scrutiny for wind parks in the Nordic regions and last but not least, my opinion is that the company announced a dividend that is not in line with the capital needs of the company. Their big net cash position should be distributed to shareholders of the company as there are no need to witheld this amount of cash (few projects in pipeline and Øyfjellet is sold to Aquila Capital).

Nevertheless, I will keep an eye on the company going forward and may initiate a new position at more desirable prices.

Introduction: Eolus Vind is Sweden’s first commercial wind power developer. Since inception in 1990, the company has become a leading Nordic wind power developer and has installed and delivered more than 540 wind turbines. The core business is to construct wind power facilities in favorable wind locations and transfer them to customers. The company operates in the Nordics, Baltics and the US and the company is listed on Nasdaq Stockholm Small Cap.

Investment thesis: Demand for electricity and wind power is expected to increase over the next decades at a 7 % CAGR. The shift to renewable energy will require investments in wind power parks, as there is little room for more hydro power and solar power is less competitive in the Nordic region due to the climate. For more details see analysis by Introduce.


Why did I choose to sell 25% of my holdings?

When I decide to part with an investment it is mostly because the investment thesis did not play out as I thought, the investment case changed or the company announced a dividend cut. In this case, I actually violate my own rules, but I’ll try to justify my reasoning below.

First, I only sold a quarter of my holdings, hence I still have a great exposure to the company. The shares I sold has been held for 9 months and gave me a return of ~83% (including dividends), which is greatly above what I expected in January.

  • Secondly, I see limited triggers in the company the next couple of years since there are less projects under development.
  • Increased controversy surrounding wind power, especially in Norway, might increase the project risk at Öyfjellet and other ongoing and future project.
  • I bought the shares at 56.50 SEK, with an implied yield of 2.7% (1.5 SEK per year). With a share price of 102 SEK the yield is around 1.5%. I do expect though that the company will announce an extraordinary dividend due to their strong cash position (expectations in the market of 10 SEK per share), but this is a one-time occurence.
  • The company became my largest holding and I wanted to reduce my exposure to a small cap company.
  • My exposure to the green economy is too high at the moment (e.g. Brookfield Renewable Partners, TransAlta Renewables, Scatec Solar to name a few).

Will I sell future holdings in the company? It depends on the performance going forward, but I’m definitely in it for the long run.

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I increased my holdings in this monthly dividend paying company on 11 September 2019. TransAlta Renewables is a renewable energy infrastructure company headquartered in Calgary, Alberta and is traded in Canadian Dollars. TransAlta renewables is the renewable energy subsidiary of TransAlta Corporation. The parent company owns roughly 61% of TransAlta renewable’s stock.

Majority of the company’s revenues comes from power generation from wind turbines (46%) and natural gas (47%). It has access to growth capital through the capital markets as well as their parent company; TransAlta Corporation. Find enclosed an investor presentation from May 2019.

Dividend: As mentioned the company pays out a monthly dividend and the current yield is ~7 %. I don’t believe the dividend will increase in the coming periods, but due to the contract length of their assets I believe that the current dividend is sustainable and attractive at these levels. The monthly dividends, stable income and low volatility gives the stock characteristics of a fixed income security, which is a great component for any portfolio.

Historically, the dividend has a 5 % annual CAGR, but the dividend did not increase from 2017 to 2019 suggesting that the future increases will be as great as in the past.

I bought my first shares in Securitas at 147 SEK on the 10 September 2019. The share price reacted very negative on Q2 2019 – figures. I believe the company is well managed, has a stabile growth outlook due to increased urbanisation, promising acquisitions and necessary investments in security technology.

The company was established back in 1934 as Hälsingborgs Nattvakt and has since then grown to become a world leader in security services. Investment AB Latour entered as owners of the company in 1985 and under their ownership the company developed into a multinational corporation. The market for Securitas’ services benefits from the megatrend of urbanisation which support the companies growth outlook. Securitas is investing heavily in security technology and are making acquisitions in order to meet the rapid pace of transition to security solutions that combine on-site and mobile guarding with various forms of electronic security.

Megatrend: Urbanisation. Rapid urbanisation will most likely have the greatest impact on how and where humans live. People leave the countryside and migrate to cities. Combining urbanisation with increasing demand for improved standard of living for emerging economies and an increase in the world’s population results in megacities and the need to rethink how cities are built. Securitas will benefit from this megatrend since there are higher crime rates in cities than in rural areas.

Dividend: The company has increased its dividend the past four years and their dividend policy is to distribute 50-60 % of annual net income to its shareholders. Historically, the company has paid a steady dividend and has also distributed shares in Loomis and Assa Abloy.

  • Current dividend yield: 3.0 %
  • Dividend payout ratio: ~50
  • Return on equity: ~17 %
  • Equity ratio: ~29%
  • Net debt / EBITDA: 3.0

Technical analysis: The share prices has recently come under a lot of pressure and the stock is a sales candidate (downwards trend). 10 day MA has crossed 50, 100 and 200 days MA and and 50 days MA has crossed 100 days MA. The stock has support around 140 and there is resistance around 150 SEK A break through 140 signals further decline.

https://www.tradingview.com/x/tDbYgyLr
Securitas security Las Vegas

Healthcare is a broad description for many industries, and for retail investors it is sometimes hard to understand what a healthcare company is actually selling, producing or developing. Companies in this sector are also in various business cycle stages. From mature companies with stable income and broad products or services to companies with no income and a single product under development. But overall; healthcare is considered a defensiv sector, and this is what’s making the sector attractive for many investors.

I will in this article present 5 Nordic Healthcare companies worth taking a closer look at! A common feature for these five companies is that they are all highly profitable companies, and all will benefit from structural growth and megatrends in years to come. Declining global fertility rates, rapidly aging world population and increased spending on technology in the healthcare sector are structural changes that affects us very slowly but will change our society the most in the coming decades.

Source: visualcapitalist.com

But first, how did I select the five companies?

I started out screening Nordic companies within the healthcare sector on various financial ratios such as dividend growth, payout ratio, net debt / EBITDA and EV / EBITDA. By doing so I eliminated every non-profitable healthcare – company and found the companies that are worth spending anymore time on. Below is a table of the financial ratios extracted from borsdata.se and Yahoo Finance.

Company Dividend growth 5yDividend payout ratioNet debt / EBITDAEV / EBITDA
Boule Diagnostics 29.7 %50 %3.523.0
Vitrolife 23.2 %27 %(0.9)35.5
Biotage14.9 %56 %0.828.4
Novo Nordisk 10.3 %52 %(0.2)15.3
Medistim 10.0 %56 %(0.2)28.1

#1. Boule Diagnostics

(disclaimer: I hold a position in the company)

About the company: Boule Diagnostics AB, founded in 1956, is a global diagnostics company that develops, manufactures and markets instruments and consumable products for blood diagnostics. The company serves hospitals, clinics, laboratories and companies within blood diagnostics, in both human and veterinary haematology. 

Boule operates mainly in the decentralised haematology segment, which consists of smaller hospitals, clinics, laboratories and healthcare centres. The company sells its products directly in Sweden and the United States, as well as through distributors internationally.

Bilderesultat for boule diagnostics

Link to my past write-up on the company can be found here: Boule – adding a MedTech-company to my portfolio.

#2. Vitrolife

About the company: Vitrolife, founded in 1981, is an international medtech group that develops, produces and markets fertility treatment products as well as cell therapy and tissue engineering, organ transplantation systems, and products based on hyaluronic acid. It operates in Europe, the Middle East, and Africa; Asia; Japan and Pacific; and North and South America.

The company benefits from a societal trend of postponing childbearing, both in Western countries as well as Emerging countries. Global market growth in the IVF area, measured in monetary terms, is estimated to 5-10% per annum. Growth is driven by the growing middle class, the fact that parents-to-be choose to try to have children later in life, greater social acceptance of IVF and increased use of technology in IVF treatments.

Bilderesultat for vitrolife product

Link to my past write-up on the company can be found here: Vitrolife – profitable growth, but skyhigh valuation

# 3. Novo Nordisk

Relatert bilde

Novo Nordisk, founded in 1925, is a Danish healthcare company with a global presence within diabetes care, haemophilia, growth disorders and obesity. It is the largest listed company in the Nordic equity markets, in terms of market capitalisation.

The company will benefit from an ageing population, since nearly all type 2 diabetes patients are diagnosed after the age of 45 and many after 65, as well as lifestyle changes that translate into higher rates of the conditions of overweight, obesity, pre-diabetes and diabetes (type 2).

Bilderesultat for novo nordisk

The company operates in two segments, Diabetes Care and Obesity, and Biopharmaceuticals. The Diabetes Care and Obesity segment provides products in the areas of insulins, GLP-1 and related delivery systems, oral anti-diabetic products, obesity, and other chronic diseases. The Biopharmaceuticals segment offers products in the areas of haemophilia, growth disorders, and hormone replacement therapy.

#4. Biotage

Bilderesultat for biotage

About the company: Biotage is a global Life Science company that develops instruments and consumables solutions for analytical, organic and peptide chemistry. It sells its products to government authorities, academic institutions, contract research and contract manufacturing companies, pharmaceutical and food companies. They have developed a lot of products and software for their three segments; Organic chemistry, analytical chemistry and industrial products.

The company has recently acquired PhyNexus, which will add competence and a product portfolio of equipment within the high growth niche; biomolecules (pharmaceutical industry).

Bilderesultat for biotage

Biotage Organic Chemistry products are used in research to effectively produce and purify the base substances of new pharmaceuticals. Biotage Analytical Chemistry products are used by organizations such as hospitals and commercial research labs to purify, for example, blood, soil or foodstuff samples before they are sent for final analysis. Biotage Industrial Products are used to purify or separate substances on an industrial scale, for example, in the pharmaceutical and food manufacturing industries. They are used in manufacturing processes as well as process development. An example of this is the purification of citric acid from pesticide residues. (Source: annual report 2018)

#5. Medistim:

Bilderesultat for medistim

About the company: Medistim ASA is the only Norwegian company on this list. The company develops, produces, services, leases, and distributes medical devices for cardio-vascular surgery in the United States, Europe, Asia, and internationally. It operates through three segments: Lease of Equipment, Capital and Consumable Sales, and Distribution and Sales of Third Party Products.

The company will benefit from an ageing population, since most cardiac surgeries are performed on the elderly population, but they will also benefit from lifestyle changes that translate into higher rates of the conditions of overweight and obesity.

Bilderesultat for medistim

The company offers MiraQ Cardiac, a system that combines ultrasound imaging and transit time flow measurement (TTFM) in a single system for cardiac surgery; MiraQ Vascular, a system that combines ultrasound imaging and transit TTFM in a single system for vascular surgery; imaging probes for intraoperative use; VeriQ C, a system that combines ultrasound imaging and TTFM in a single system for cardiovascular procedures; and VeriQ that offers TTFM and doppler velocity measurements for intraoperative blood flow and graft patency verification. The company also provides various flow probes, such as QuickFit TTFM probes to accurately measure blood volume flow intraoperatively in various range of surgical applications; Vascular TTFM probes for enhancing surgical outcomes; and doppler probes that are used on the surface of the heart/vessel to search for intramural coronary arteries or to locate the position and quantify the degree of a stenosis.

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In this post I will share my initial thoughts on Vitrolife and my investment thesis. I’m currently on the sideline due to the high valuation.

Vitrolife is an international medtech group that develops, produces and markets fertility treatment products as well as cell therapy and tissue engineering, organ transplantation systems, and products based on hyaluronic acid.

Vitrolife is listed on Nasdaq Stockholm Large Cap and the current market cap is around 18 billion SEK.

Megatrend: The company benefits from a societal trend of postponing childbearing, both in Western countries as well as Emerging countries.

Global market growth in the IVF area, measured in monetary terms, is estimated to 5-10% per annum. Growth is driven by the growing middle class, the fact that parents-to-be choose to try to have children later in life, greater social acceptance of IVF and increased use of technology in IVF treatments.

Dividend history:

Vitrolife has increased their dividends at a high rate the past couple of years, but the share price has also increased from very low levels which results in a dividend yield of only 0.5 %. On the other hand, I expect the dividend growth over the coming years to offset the low dividend yield today. I expect the dividend for the fiscal year 2019 to be 1 SEK (30% of EPS 3.3 SEK) resulting in a dividend yield of 0.63 % (increase of 17.6%). Key measures support the room for increasing dividends, but also allows the company to grow through organic growth and acquisitions.

  • Payout ratio: ~30%
  • Equity ratio: ~80 %
  • Negative Net debt / EBITDA

Valuation: Trades at EV / EBITDA of 36.4 and PE of 52 which is skyhigh, but the average return on equity the past five years is ~20%! But, given an reinvestment rate by the company of 70% and a return on equity of 20 % I believe that the company can defend this valuation.

TA: The stock is a sales candidate (downwards trend). 10 and 50 days MA has crossed 200 days MA and 100 days will soon also cross 200 MA. The stock has support around 160 SEK and 145 SEK. A break through 160 signals further decline.

https://www.tradingview.com/x/8jM7TDID

A final remark is the possibility that William Demant A/S has increased their shareholdings in the company and now owns 22.6% of the company and rumour has it they are willing to make a bid on the entire company.