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Important information: All information regarding limitation of liability and potential conflicts of interest can be found at the end of the report Redeye, Mäster Samuelsgatan 42, 10tr, Box 7141, 103 87 Stockholm. Tel. +46 8-545 013 30, E-post: [email protected]
Update
Equity Research 26 March 2019
KEY STATS
Ticker VITR.ST Market Mid cap
Share Price (SEK) 205.0 Market Cap (MSEK) 22253 Net Debt 19E (MSEK) -787 Free Float 58 %
Avg. daily volume (‘000) 0
BEAR BASE BULL 100.0
160.0
200.0
KEY FINANCIALS (SEKm)
2017 2018 2019E 2020E 2021E 2022E Net sales 1046 1151 1418 1604 1762 1929 EBITDA 408 479 626 717 851 934 EBIT 341 394 512 587 716 797
EPS (adj.)
2017 2018 2019E 2020E 2021E 2022E EPS (adj.) 2.4 2.9 3.7 4.2 5.2 5.8 EV/Sales 12.6 13.5 15.2 13.2 11.8 10.6 EV/EBITDA 32.3 32.4 34.3 29.6 24.5 21.8 EV/EBIT 38.6 39.4 42.0 36.1 29.1 25.6 P/E 51.3 51.5 55.4 48.3 39.2 35.2
ANALYSTS
Arvid Necander [email protected] Mathias Spinnars [email protected]
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OMXS 30 Vitrolife
Illuminated Path to Growth
A Strong End to 2018
Sales amounted to SEK 320 million in Q4´18, corresponding to a growth of 12% in local
currency. In the whole year of 2018, media sales grew by about 6% in local currency, which
indicates that the weak performance in Q1’18 was of temporary nature and that Vitrolife has
maintained its market share. The gross margin came in at 67% (64%) in Q4 and the EBITDA
reached an impressive SEK 135 million, corresponding to an EBITDA margin of 42% (38%).
The net margin was 27% (25%) during the quarter.
With two consecutive quarters of strong growth and profitability, we see that the worries
following the somewhat sluggish development in H1’18 are blown away. Going forward, we
see that strong growth opportunities still remain across the business units.
High Growth Potential in Product Portfolio, But Market Wants More
Having included the sales from the new genomics business unit in our estimates and
reviewed the IVF market landscape, we unmask a high growth potential. We forecast a
gradual ramp up of sales in genomics in 2019, reaching full effect in the last quarter of the
year. In total, we forecast sales of SEK 143 million in the business unit in 2019, corresponding
to about 10% of net sales.
Although our forecast expects a strong contribution from genomics in 2019 and 2020, we
believe that expectations are too high. Further, we argue that time-lapse will see decreasing
sales growth in Europe, where the company has reached a high penetration for time-lapse
systems. While we believe that some of the impact will be offset by strong performance in
the USA, we expect that broader adaption is further away in China, making it challenging for
the company to deliver the growth required to support the current valuation.
Strong Momentum for VITR.ST - Our Model Indicates No Upside
An active news flow, filled with significant catalysts for the share, has given the Vitrolife share
strong momentum in the last 12 months. We argue that the share currently is trading beyond
its intrinsic value and reflects overly optimistic expectations for growth. Our model gives a
fair value (base case) of SEK 160 (110) per share, indicating no upside at current levels. Our
bull and bear case are SEK 200 and 100 per share, respectively.
Vitrolife Sector: Life Science
REDEYE RATING
VITR.ST VERSUS OMXS30
FAIR VALUE RANGE
Finan
cial
Stren
gth
Profi
tabilit
y
Profi
t Outl
ook
Mana
geme
nt Ow
nersh
ip
REDEYE Equity Research Vitrolife 26 March 2019
2
New Business Unit - Genomics In the Q4 report, Vitrolife reported that they are forming a new business unit (genomics), which
will incorporate Illumina’s IVF business for preimplantation genetic testing (PGT). The
integration was ongoing in Q4’18 and the company informed that they have invested in a new
distribution channel and recruited personnel. Further, Vitrolife reported that the first customer
deliveries of product were made in early 2019. We believe that it will take some time to transfer
the customers from Illumina and forecast a gradual sales impact from genomics during the
year. Our forecast expects that the business unit will be in full effect towards the end of 2019.
Prior to the Illumina partnership, we pointed PGT as a natural next step for Vitrolife in the search
for new technologies. We argue that technological development in PGT will be the main driver
of innovation in IVF and foresee increased usage as genetic mapping continues to develop.
The continued innovation within PGT is also expected to result in a continued high growth for
the market. The value of the global PGT market is expected to increase from about USD 340
million in 2017 to 540 million in 2022, corresponding to a CAGR of 10% (MarketsAndMarkets,
2018).
While continued technological advances and new applications are expected to be strong
drivers for the PGT market, we also see other factors supporting a high growth. Today, the
penetration of PGT is estimated to less than 10% and with an expected continued clinic
consolidation, we expect that more clinics will be able to offer PGT and thereby increase the
availability.
Figure 1. Forecasted Sales, Vitrolife Genomics
Source: Redeye Research
0,0
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1Q19E 2Q19E 3Q19E 4Q19E
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REDEYE Equity Research Vitrolife 26 March 2019
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While the European market is significantly larger in terms of the number of IVF cycles, we also
recognise that many European countries restrict or forbid the use of PGT. Therefore, we believe
that the American market likely will be the most important - at least in the short-term horizon.
We do, however, believe that regulation will loosen up in Europe as the technologies continue
to develop.
Figure 3. PGT Availability in Europe
Source: Vitrolife, 2018
Figure 2. PGT Market to Witness High Growth
Source: MarketsAndMarkets, 2018
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REDEYE Equity Research Vitrolife 26 March 2019
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Further, we believe that the growth curve will differ for different types of PGT tests. PGT
encompasses both PGT for aneuploidies (PGT-A, previously referred to as PGS and CCS), PGT
for monogenic/single gene disorders (PGT-M, previously referred to as PGD). Additionally, new
applications such as PGT for chromosome structural rearrangements (PGT-SR) and
Preimplantation Genetic Testing for Polygenic disease (PGT-P) are evolving. In the
partnership’s current form, Vitrolife will be the distributor of Illumina’s PGT-A kit VeriSeq PGS
and PGT-M kit HumanKaryomap-12 in EMEA and Americas.
PGT-A Will Complement Time-Lapse When screening for sporadic chromosome abnormalities (aneuploidy), it is referred to as PGT-
A. Chromosomal abnormalities can impact the chance of successful embryo implantation and
result in miscarriage or chromosomal syndrome like downs syndrome. The test is performed
through an embryo biopsy, where a few cells are tested to enable the selection of an embryo
without abnormalities.
As we have previously pointed out, PGT screening will not be of value to all patients. Milán et
al. (2010) published results from a retrospective trial with 1848 patients and 2,253 IVF cycles,
showing that the effect of PGT-A on pregnancy outcome is highly dependent on maternal age,
indicating no benefit if advanced maternal age (35 and older) is not reached. A more recent
retrospective trial (where PGT-A testing was done with assays from Natera) conducted by
Simon et al., (2018) came to a different conclusion. The study included pregnancy outcomes
from 974 patients and 1,883 IVF cycles and showed that PGT-A does have a positive effect in
all maternal ages. When looking at the share of embryos transfers that resulted in clinical
pregnancies and live births, however, it is evident that the benefits of PGT-A does indeed
increase significantly with age.
Figure 4. Pre-implantation Genetic Testing
Source: Vitrolife, 2018
REDEYE Equity Research Vitrolife 26 March 2019
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We therefore argue that PGF will be used as a complement to time-lapse in order to enhance
the decision making mainly when IVF patients have reached advanced maternal age. Taking
this into account, we believe that PGT could be beneficial in about 25-30% of the IVF cycles
that are performed in the world. We therefore expect to see continued high market growth of
about 10% in the near to mid-term future, moving towards 5% at the end of our forecast period.
While the high market growth will leave space for several players, we recognise that Illumina
has been a dominant force in the market and that competition is increasing from players such
as Thermo Fisher, Agilent, PerkinElmer and Natera. We do, however, also believe that the IVF
has been far from the core business for the DNA sequencing giant, who is increasingly is
focusing on oncology. Taking this into account, we believe that Vitrolife will be able to deliver
above-market growth in the business in 2020-2021, which then will decrease gradually to about
6% at the end of our forecast period.
Figure 5. Success Rates by Age, PGT-A
Source: Simon et al., 2018
REDEYE Equity Research Vitrolife 26 March 2019
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PGT-M – A Revolution in Its Infancy PGT-M is used to reduce the risk of having a child with a known hereditary disorder. Through
genetic testing of an embryo biopsy, the method can discover diseases caused by mutations
in a single gene, such as cystic fibrosis or Huntington’s disease.
According to the US Centers for Disease Control and Prevention (CDC), about 150,000 babies
are born per year in the USA with birth defects. About 20% of them are congenital, which means
that they could be prevented with PGT-M. The method therefore has the potential of saving
many families from unnecessary suffering, as well as society from the high treatment costs
that the diseases often are associated with.
It is, of course, important to recognise that genetic mapping of human diseases is in its infancy
and that it will take a long time to uncover the clues of complex diseases that involve many
genes. With the investment that is going into biotech, it does, however, it is certain that we will
continue to see progress in the area. We therefore believe that the value of PGT-M will increase
over time and that that the use of the method will increase steadily, resulting in a high level of
sustainable growth, amounting to about 10% for a foreseeable future.
Proprietary Products Will Accelerate Growth and Boost Profitability Implementing PGT does require investment in new laboratory equipment and recruitment of
staff. Therefore, we argue that focus customers likely will be larger reference laboratories in
the first step. Vitrolife does, however, aim to develop fully kitted products, based Illumina
sequencing assays. We believe that the development mainly will focus on increasing the user
friendliness and making it easier to introduce PGT in the workflow for clinics.
With the introduction of these products, we believe that the potential customers will include
larger and mid-size laboratories as well, expanding the customer base significantly. Further, we
believe that gross margins for the proprietary products will be closer to the current company
average of about 65-70%. We do, however, expect that product development will take time and
forecast a launch in 2021.
REDEYE Equity Research Vitrolife 26 March 2019
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Significant Growth Potential Remain Across Business Units While genomics is expected to be the most significant growth driver in 2019 and 2020, we still
believe that significant growth potential remains in the more established business units. The
time-lapse business unit is expected to be a continued strong contributor in 2019 and 2020,
driven by increasing traction in the USA and China.
Media Sales in the media business unit showed strong performance in Q4 and amounted to SEK 156
(135) million. The result corresponded to a growth of 10% in local currency and the company
reported that growth was seen across all market regions. With three consecutive quarters of
stable growth and a growth of about 6% in 2018, we believe that Vitrolife has maintained its
market share and that the hiccup in China in first quarter of 2018 was of temporary nature.
We believe that growth opportunities still remain in pockets of the IVF media market, such as
the rapidly growing market for vitrification media. Going forward, we forecast high single digit
growth in the business unit and a gradual decrease to about 5% at the end of our forecast
period.
Disposables In the disposable devices business unit, sales increased by 32% in local currency and
amounted to amounted to SEK 49 (35) million in Q4. According to the company, growth was
seen across all products in the business unit. While we see the performance as impressive, we
believe that it likely was affected by factors of temporary nature. In the earnings call,
management pointed to the increased production capacity as one of the key factors behind
the result. Further, we recognise that order intake can vary significantly from quarter to quarter.
Management reported that the embryo transfer technology that was licensed from CrossBay
Medical in early 2018 will see a delay in the launch plan due to expanded product development.
In the earnings call, management guided for a 12-15 month delay (from the planned launch in
2020) due to findings from clinical testing during the year, where the company saw opportunity
for improvement. Our belief is that the new embryo transfer catheter will be used a niche
Figure 6. Sales per Business Unit
Source: Redeye Research
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REDEYE Equity Research Vitrolife 26 March 2019
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product, used in particularly difficult cases where the transfer has failed several times with
conventional catheters. We do, however, also believe that the high level of innovation will
warrant a significantly higher price than conventional catheters and forecast a gross margin of
about 70% for the product.
We forecast launch of the product in 2021, resulting in a small uptick in sales of disposables.
With the release of the product, as well as the increased marketing power through the
collaboration with GE Healthcare, we believe that Vitrolife will be able to gain market share in
the business unit. We forecast slightly above mid-single digit growth in the near to mid-term
horizon and reversion to about 5% at the end of our forecast period.
Time-lapse Sales in the time-lapse business amounted to SEK 94 (79) million, corresponding to a growth
of 14% in local currency. The last three quarters appear to signal a slowdown and, with a high
penetration for time-lapse systems in Europe, we expect the development will continue in
market. We do, however, argue that significant growth opportunities still remain in the USA and
China, in a near to mid-term horizon.
Support for increased acceptance for time-lapse in the USA has been shown in the last two
quarters, where the company has reported strong growth in the market. Additionally, we expect
that the approval of the EmbryoScope+, which holds significantly higher capacity than the
already approved EmbryoScope, is better suited for the Chinese market and will improve the
prospects for growth. We do, however, believe that the short-term impact on sales will be
modest. Time-lapse was recently introduced in China and we believe that it, just as in Europe,
will take some time before the technology reaches broad adaption in IVF clinics. We therefore
model a modest contribution from the market until 2020, when is assumed to accelerate.
ART equipment Sales in the ART equipment decreased by 19% in local currency and amounted to SEK 15 (17)
million. Revenue was in line with what was seen in the previous quarter, causing us to believe
that the sales erosion has peaked. We forecast flat sales in 2019 and mid-single digit growth
in the following years.
REDEYE Equity Research Vitrolife 26 March 2019
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Financial forecasts In the last three quarters of 2018, Vitrolife enjoyed a significant currency tailwind. Further, we
recognise that margins will see increasing pressure during 2019 with roll out of the Illumina
portfolio. With Vitrolife acting as the distributor of Illumina’s products, margins will be
significantly lower than the company average. We forecast gross margins of about 45%,
resulting in an increasingly negative impact on the total gross margin in 2019. When taking this
into account, we believe that Vitrolife will have a hard time living up to the market’s expectations
for sales growth.
Table 1. Income Statement(SEKm) 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19
Net sales 264,0 283,2 284,0 320,1 308,9 347,2 350,7 411,3
Cost of goods sold -92,5 -95,9 -96,2 -105,7 -104,7 -121,2 -125,6 -147,8
Gross income 171,5 187,3 187,9 214,4 204,2 226,0 225,1 263,5
Selling expenses -42,2 -46,6 -44,3 -51,5 -46,0 -51,0 -48,4 -56,8
Administrative expenses -25,4 -25,1 -21,7 -27,1 -26,3 -26,0 -22,8 -29,6
Research & development costs -18,5 -18,8 -15,3 -35,8 -22,6 -24,0 -20,0 -31,3
Other operating revenues & exp. 4,2 1,7 -2,5 1,7 -0,6 -0,6 -0,6 -0,6
EBIT 89,7 98,5 104,0 101,7 108,8 124,4 133,3 145,3
Financial income & expenses 4,9 1,9 -7,8 5,8 1,4 0,0 -2,0 2,0
Income after financial items 94,5 100,3 96,2 107,5 110,2 124,3 131,3 147,2
Income taxes -22,7 -20,8 -21,1 -23,3 -25,8 -25,1 -28,0 -31,2
Net income 71,8 79,6 75,1 84,1 84,4 99,2 103,3 116,1
Earnings per share 0,66 0,73 0,69 0,77 0,77 0,91 0,95 1,07
EBITDA 106,3 116,2 121,0 135,2 137,1 153,4 162,3 173,6
Sales grow th 8,2% -0,8% 15,5% 18,2% 17,0% 22,6% 23,5% 28,5%
Gross margin 65,0% 66,1% 66,1% 67,0% 66,1% 65,1% 64,2% 64,1%
EBIT margin 34,0% 34,8% 36,6% 31,8% 35,2% 35,8% 38,0% 35,3%
EBITDA margin 40,3% 41,0% 42,6% 42,2% 44,4% 44,2% 46,3% 42,2%
Source: Redeye Research
Table 2. Income Statement(SEKm) 2014 2015 2016 2017 2018 2019E 2020E 2021E
Net sales 511 722 856 1 046 1 151 1 418 1 604 1 762
Cost of goods sold -161 -238 -295 -365 -390 -499 -564 -559
Gross income 349 485 561 682 761 919 1 039 1 204
Selling expenses -112 -140 -156 -170 -185 -202 -225 -242
Administrative expenses -60 -80 -94 -99 -99 -105 -115 -122
Research & development costs -42 -56 -62 -69 -88 -98 -110 -121
Other operating revenues & exp. 8 17 -1 -2 5 -2 -3 -3
EBIT 143 226 249 341 394 512 587 716
Financial income & expenses 4 1 0 0 5 1 1 1
Income after financial items 147 227 249 341 399 513 588 717
Income taxes -37 -43 -58 -76 -88 -110 -126 -148
Net income 109 183 191 265 311 403 462 569
Earnings per share 1,1 1,7 1,8 2,4 2,9 3,7 4,2 5,2
EBITDA 167 279 303 408 479 626 717 851
Sales grow th 13% 41% 19% 22% 10% 23% 13% 9,9%
Gross margin 68% 67% 66% 65% 66% 65% 65% 68,3%
EBIT margin 28% 31% 29% 33% 34% 36% 37% 40,6%
EBITDA margin 33% 39% 35% 39% 42% 44% 45% 48,3%
Source: Redeye Research
REDEYE Equity Research Vitrolife 26 March 2019
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Valuation Vitrolife’s performance has been has certainly been impressive in the past 6 months, where the
company has seen both high growth and margin expansion. Further, the company has
announced new partnerships with GE Healthcare and Illumina and received new market
approvals. These factors, in combination with rumours of China abolishing the one child policy,
the entry to large cap and the approval of EmbryoScope+ in China, has sent the share to new
heights. In the past six months, the share is up by almost 60%.
DCF Valuation While we believe that the partnership will be key for continued sales growth and value creation,
we believe that the current share price discounts more than what can be met. Following a
review after the performance in the past quarter and including the sales from the new
genomics business unit, our fair value is increased to SEK 160 (110) per share.
Figure 7. Share Price Development and Catalysts, VITR.ST
Source: Nasdaq
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SE
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Total volume Closing price
Q4 results
Embry oScope+approv ed in
China
Included in OMX Stockholm large
cap
Q3 resultsAnnounced
Illumina
partnership
Rumours of plans to
abolish
one-child
policy in China
Table 3. DCF Summary
SEKm Per share
DCF 2019-30 5 729 53
DCF 2031- 10 843 100
IBD 0 0
Cash & cash equivalents 491 5
Other -23 0
Summa 17 039 157
CAGR 2019-22 13,8%
CAGR 2019-30 9,2%
EBIT margin 2030 46,0%
EPS 2025 7,83
WACC 7,2%
Terminal grow th rate 2,0%
Number of shares FY1 (Mn) 108,6
Source: Redeye Research
REDEYE Equity Research Vitrolife 26 March 2019
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Multiple-based Valuation To illustrate the valuation of Vitrolife on a multiple basis, we have chosen intervals of multiples
for a slightly more mature company. We apply our estimates for 2023E and add the net cash
as well as paid dividends. To take the time value into account, the value is discounted to present
value.
Sensitivity Analysis An NPV valuation of a company is highly sensitive to the discount rate (WACC) an investor
uses. In order to capture the sensitivities, we have computed a table that shows the value
generated when applying different rates in our model.
Table 4. Discounted Multiple-based Valuation
Multiple Estimate 2023E Multiples Value per share
EV/S S 2 102 4,0x - 8,0x 77 - 133
EV/EBITDA EBITDA 1 022 15,0x - 25,0x 123 - 191
EV/EBIT EBIT 884 20,0x - 30,0x 139 - 197
P/E EPS 6 25,0x - 35,0x 122 - 168
Source: Redeye Research
Table 5. Sensitivity Analysis
WACC
5,2% 6,2% 7,2% 8,2% 9,2%
Equity value 28 983 21 566 17 039 14 001 11 829
Value per share 267 199 157 129 109
Källa: Redeye Research
REDEYE Equity Research Vitrolife 26 March 2019
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Investment Case Involuntary childlessness happens to about 10% of couples. The number is expected to increase as the maternal
age is rising steadily over the world. A large share of the couples can be helped through in-vitro fertilisation (IVF)
treatment, however, which has seen high technological advancement in recent years. This has led IVF to become a
huge industry and there are now clinics everywhere across the developed and developing world.
Strong Position in an Attractive Growth Market
Assuming an average sales value of SEK 2,000 per IVF cycle, the global market for disposable IVF products is
estimated to about SEK 4 billion. This would give Vitrolife a market share of about 20%, a number that is believed to
have increased significantly through the recent years.
We expect to see an overall market growth of 5-10% through our forecast period. Vitrolife has been able to grow
faster than the overall market, however, due to geographical expansion to growth markets, an expanded product
offering and successful acquisitions. Given the company’s strong product portfolio and high quality, proven by the
excellent track record, we believe that sales growth will exceed that of the overall IVF market for a foreseeable
future.
Sustainable Growth and High Profitability Ahead
Significant growth opportunities still remain across the business units, but expectations are high. A high continued
growth in the near-term relies on successful expansion of time-lapse to the USA and China. Market uptake for time-
lapse has so far been slow in the USA, where PGT technology has gotten a strong traction. Further, the company is
in an early commercialisation for time-lapse in China, where IVF is provided on a self-pay basis.
We do, however, recognise that the documentation of the technology’s benefits is growing and argue that time-
lapse will become complimentary to PGT in American clinics, although this will take time. We believe that the
scenario will be similar in China, although we expect it will take about two years for the technology to gain traction
among the Chinese IVF clinics.
With, what we believe to be reasonable assumptions, we expect profits to increase rapidly. If the company delivers
on our estimates, valuation multiples become significantly lower 2-3 years ahead. In our base case, we expect to
see an average sales growth (CAGR) of more than 10% until 2020, and an EBITDA margin higher than 40%. The EPS
is expected to be doubled by 2023.
Valuation Indicates High Expectations
Vitrolife’s performance has been has certainly been impressive in the past 12 months, where the company has seen
both high growth and margin expansion. Although many growth opportunities remain, we believe that the current
share price discounts more than what can be met. Our discounted cash flow (DCF) model gives a value of about
SEK 160 per share, indicating no upside from current levels.
Valuation
Bear Case 100.0 SEK Base Case 160.0 SEK Bull Case 200.0 SEK We model slower growth, amounting to 10% per year until 2021. The scenario is based on more sluggish development for time-lapse in the USA and China. We also account for a higher cost base, resulting in an EBITDA margin of 32% in 2021. In this scenario, our model indicates a value of SEK 100 per share.
We expect average an annual sales growth of 15% until 2021, when the EBITDA margin expands to 48%. This gives a fair value of about SEK 160 per share.
The average sales growth amounts to 25% until 2021. The scenario relies on faster-than-expected acceptance for time-lapse technology in the USA and China. The higher sales lifts the EBITDA margin to 46% in 2021. In this scenario, our model indicates a value of SEK 200 per share.
REDEYE Equity Research Vitrolife 26 March 2019
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Summary Redeye Rating The rating consists of five valuation keys, each constituting an overall assessment of several factors that are rated
on a scale of 0 to 2 points. The maximum score for a valuation key is 10 points.
Rating changes in the report Management: 10.0
Vitrolife is a company of high quality that has lived up to high set expectations. The CEO has experience from
similar positions at other listed medtech companies. The board and management have a number of successful
years behind them, growing Vitrolife into a key player in the sector.
Ownership: 8.0
We have a positive view of Bure's large ownership in Vitrolife and representation in the board of directors. The rating
is affected negatively by the limited ownership from the management and board of directors.
Profit Outlook: 9.0
The IVF market still has significant growth opportunities. Growth expected to be driven by increasing maternal age
and the introduction of new technology. The market is competitive, however, and cannot be characterized as
underdeveloped.
Profitability: 8.5
Vitrolife has managed to combine a high level of growth with high profitability consistently. Some of our profitability
measures demand a longer history, however, which affects the rating. If the current trend continues, further
upgrades will be warranted.
Financial Strength: 5.0
Vitrolife has a strong balance sheet considering the relatively stable business, but should not be seen as
overcapitalised either. As with many other smaller companies, the rating is affected negatively by the reliance on the
success of a few products the product portfolio.
REDEYE Equity Research Vitrolife 26 March 2019
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PROFITABILITY 2017 2018 2019E 2020E 2021E ROE 24% 23% 24% 22% 23% ROCE 30% 29% 30% 28% 29% ROIC 39% 47% 51% 53% 62% EBITDA margin 39% 42% 44% 45% 48% EBIT margin 33% 34% 36% 37% 41% Net margin 25% 27% 28% 29% 32%
Please comment on the changes in Rating factors……
INCOME STATEMENT 2017 2018 2019E 2020E 2021E Net sales 1,046 1,151 1,418 1,604 1,762 Total operating costs -638 -673 -792 -887 -911 EBITDA 408 479 626 717 851 Depreciation -26 -31 -33 -37 -37 Amortization -41 -54 -82 -93 -98 Impairment charges 0 0 0 0 0 EBIT 341 394 512 587 716 Share in profits 0 0 0 0 0 Net financial items 0 5 1 1 1 Exchange rate dif. 0 0 0 0 0 Pre-tax profit 341 399 513 588 717 Tax -76 -88 -110 -126 -148 Net earnings 264 310 402 461 567
BALANCE SHEET 2017 2018 2019E 2020E 2021E Assets Current assets Cash in banks 396 491 787 1,069 1,458 Receivables 153 185 226 253 275 Inventories 151 161 197 220 239 Other current assets 10 9 12 13 14 Current assets 710 847 1,221 1,555 1,987 Fixed assets Tangible assets 84 94 110 118 124 Associated comp. 4 6 6 6 6 Investments 5 18 22 25 27 Goodwill 409 422 422 422 422 Cap. exp. for dev. 0 0 0 0 0 O intangible rights 199 306 359 385 402 O non-current assets 0 0 0 0 0 Total fixed assets 701 846 918 956 980 Deferred tax assets 12 5 6 7 8 Total (assets) 1,422 1,697 2,146 2,518 2,975 Liabilities Current liabilities Short-term debt 0 0 0 0 0 Accounts payable 117 125 154 174 192 O current liabilities 0 0 0 0 0 Current liabilities 117 125 154 174 192 Long-term debt 0 0 0 0 0 O long-term liabilities 0 8 10 11 12 Convertibles 0 0 0 0 0 Total Liabilities 117 133 164 186 204 Deferred tax liab 69 57 70 79 87 Provisions 7 12 14 16 18 Shareholders' equity 1,226 1,493 1,894 2,235 2,664 Minority interest (BS) 3 3 3 3 3 Minority & equity 1,229 1,496 1,898 2,238 2,667 Total liab & SE 1,422 1,697 2,146 2,518 2,975
FREE CASH FLOW 2017 2018 2019E 2020E 2021E Net sales 1,046 1,151 1,418 1,604 1,762 Total operating costs -638 -673 -792 -887 -911 Depreciations total -67 -85 -115 -130 -135 EBIT 341 394 512 587 716 Taxes on EBIT 0 0 0 0 0 NOPLAT 341 394 512 587 716 Depreciation 67 85 115 130 135 Gross cash flow 408 479 626 717 851 Change in WC -12 -34 -49 -32 -25 Gross CAPEX -17 -227 -187 -168 -160 Free cash flow 380 217 390 518 666
CAPITAL STRUCTURE 2017 2018 2019E 2020E 2021E Equity ratio 86% 88% 88% 89% 90% Debt/equity ratio 0% 0% 0% 0% 0% Net debt -395 -491 -787 -1,069 -1,458 Capital employed 829 1,000 1,105 1,163 1,203 Capital turnover rate 0.7 0.7 0.7 0.6 0.6
GROWTH 2017 2018 2019E 2020E 2021E Sales growth 22% 10% 23% 13% 10% EPS growth (adj) 38% 17% 30% 15% 23%
DATA PER SHARE 2017 2018 2019E 2020E 2021E EPS 2.43 2.85 3.70 4.24 5.23 EPS adj 2.43 2.85 3.70 4.24 5.23 Dividend 0.74 0.00 1.11 1.27 1.57 Net debt -3.64 -4.52 -7.25 -9.85 -13.44 Total shares 108.55 108.55 108.55 108.55 108.55
VALUATION 2017 2018 2019E 2020E 2021E EV 13,160.7 15,501.4 21,504.3 21,216.3 20,822.0 P/E 51.3 51.5 55.4 48.3 39.2 P/E diluted 51.3 51.5 55.4 48.3 39.2 P/Sales 12.9 13.9 15.7 13.9 12.6 EV/Sales 12.6 13.5 15.2 13.2 11.8 EV/EBITDA 32.3 32.4 34.3 29.6 24.5 EV/EBIT 38.6 39.4 42.0 36.1 29.1 P/BV 11.0 10.7 11.7 10.0 8.4
SHARE INFORMATION Reuters code VITR.ST List Mid cap Share price 205.0 Total shares, million 108.6 Market Cap, MSEK 22252.9 MANAGEMENT & BOARD CEO Thomas Axelsson CFO Mikael Engblom IR Chairman Carsten Browall FINANCIAL INFORMATION ANALYSTS Redeye AB Arvid Necander Mäster Samuelsgatan 42, 10tr [email protected] 111 57 Stockholm Mathias Spinnars [email protected]
SHARE PERFORMANCE GROWTH/YEAR 16/18E 1 month 7.3 % Net sales 16.4 % 3 month 40.8 % Operating profit adj 22.5 % 12 month 72.9 % EPS, just 23.4 % Since start of the year 39.5 % Equity 24.3 %
SHAREHOLDER STRUCTURE % CAPITAL VOTES William Demant Invest A/S 22.6 % 22.6 % Bure Equity 20.8 % 20.8 % State Street Bank And Trust co 10.1 % 10.1 % Capital Group 4.6 % 4.6 % Morgan Stanley Investment Management 3.5 % 3.5 % Lannebo Fonder 3.2 % 3.2 % The Bank of New York Mellon SA/NV 2.2 % 2.2 % Eccenovo AB 2.1 % 2.1 % Norges Bank 2.0 % 2.0 % (Gc) BNP Paribas Sec Services Paris 1.6 % 1.6 %
DCF VALUATION CASH FLOW, MSEK WACC (%) 7.2 % NPV FCF (2018-2020) 1072 NPV FCF (2021-2027) 3554 NPV FCF (2028-) 11938 Non-operating assets 452 Interest-bearing debt 0 Fair value estimate MSEK 17017 Assumptions 2017-2023 (%) Average sales growth 9.7 % Fair value e. per share, SEK 156.8 EBIT margin 40.4 % Share price, SEK 205.0
REDEYE Equity Research Vitrolife 26 March 2019
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Redeye Rating and Background Definitions The aim of a Redeye Rating is to help investors identify high-quality companies with attractive valuation.
Company Qualities
The aim of Company Qualities is to provide a well-structured and clear profile of a company’s qualities (or operating
risk) – its chances of surviving and its potential for achieving long-term stable profit growth.
We categorize a company’s qualities on a ten-point scale based on five valuation keys; 1 – Management, 2 –
Ownership, 3 – Profit Outlook, 4 – Profitability and 5 – Financial Strength.
Each valuation key is assessed based a number of quantitative and qualitative key factors that are weighted
differently according to how important they are deemed to be. Each key factor is allocated a number of points
based on its rating. The assessment of each valuation key is based on the total number of points for these
individual factors. The rating scale ranges from 0 to +10 points.
The overall rating for each valuation key is indicated by the size of the bar shown in the chart. The relative size of the
bars therefore reflects the rating distribution between the different valuation keys.
Management
Our Management rating represents an assessment of the ability of the board of directors and management to
manage the company in the best interests of the shareholders. A good board and management can make a
mediocre business concept profitable, while a poor board and management can even lead a strong company into
crisis. The factors used to assess a company’s management are: 1 – Execution, 2 – Capital allocation, 3 –
Communication, 4 – Experience, 5 – Leadership and 6 – Integrity.
Ownership
Our Ownership rating represents an assessment of the ownership exercised for longer-term value creation. Owner
commitment and expertise are key to a company’s stability and the board’s ability to take action. Companies with a
dispersed ownership structure without a clear controlling shareholder have historically performed worse than the
market index over time. The factors used to assess Ownership are: 1 – Ownership structure, 2 – Owner
commitment, 3 – Institutional ownership, 4 – Abuse of power, 5 – Reputation, and 6 – Financial sustainability.
Profit Outlook
Our Profit Outlook rating represents an assessment of a company’s potential to achieve long-term stable profit
growth. Over the long-term, the share price roughly mirrors the company’s earnings trend. A company that does not
grow may be a good short-term investment, but is usually unwise in the long term. The factors used to assess Profit
Outlook are: 1 – Business model, 2 – Sale potential, 3 – Market growth, 4 – Market position, and 5 –
Competitiveness.
Profitability
Our Profitability rating represents an assessment of how effective a company has historically utilised its capital to
generate profit. Companies cannot survive if they are not profitable. The assessment of how profitable a company
has been is based on a number of key ratios and criteria over a period of up to the past five years: 1 – Return on
total assets (ROA), 2 – Return on equity (ROE), 3 – Net profit margin, 4 – Free cash flow, and 5 – Operating profit
margin or EBIT.
Financial Strength
Our Financial Strength rating represents an assessment of a company’s ability to pay in the short and long term.
The core of a company’s financial strength is its balance sheet and cash flow. Even the greatest potential is of no
benefit unless the balance sheet can cope with funding growth. The assessment of a company’s financial strength
is based on a number of key ratios and criteria: 1 – Times-interest-coverage ratio, 2 – Debt-to-equity ratio, 3 – Quick
ratio, 4 – Current ratio, 5 – Sales turnover, 6 – Capital needs, 7 – Cyclicality, and 8 – Forthcoming binary events.
REDEYE Equity Research Vitrolife 26 March 2019
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Redeye Equity Research team
Management Björn Fahlén
Håkan Östling
Technology Team Jonas Amnesten
Henrik Alveskog
Dennis Berggren
Havan Hanna
Kristoffer Lindström
Fredrik Nilsson
Tomas Otterbeck
Eddie Palmgren
Viktor Westman
Editorial Jim Andersson
Eddie Palmgren
Ludvig Svensson
Life Science Team Anders Hedlund
Arvid Necander
Klas Palin
Mathias Spinnars
Erik Nordström (Trainee)
Jakob Svensson (Trainee)
REDEYE Equity Research Vitrolife 26 March 2019
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Disclaimer Important information Redeye AB ("Redeye" or "the Company") is a specialist financial advisory boutique that focuses on small and mid-cap growth companies in the Nordic region. We focus on the technology and life science sectors. We provide services within Corporate Broking, Corporate Finance, equity research and investor relations. Our strengths are our award-winning research department, experienced advisers, a unique investor network, and the powerful distribution channel redeye.se. Redeye was founded in 1999 and since 2007 has been subject to the supervision of the Swedish Financial Supervisory Authority. Redeye is licensed to; receive and transmit orders in financial instruments, provide investment advice to clients regarding financial instruments, prepare and disseminate financial analyses/recommendations for trading in financial instruments, execute orders in financial instruments on behalf of clients, place financial instruments without position taking, provide corporate advice and services within mergers and acquisition, provide services in conjunction with the provision of guarantees regarding financial instruments and to operate as a Certified Advisory business (ancillary authorization). Limitation of liability This document was prepared for information purposes for general distribution and is not intended to be advisory. The information contained in this analysis is based on sources deemed reliable by Redeye. However, Redeye cannot guarantee the accuracy of the information. The forward-looking information in the analysis is based on subjective assessments about the future, which constitutes a factor of uncertainty. Redeye cannot guarantee that forecasts and forward-looking statements will materialize. Investors shall conduct all investment decisions independently. This analysis is intended to be one of a number of tools that can be used in making an investment decision. All investors are therefore encouraged to supplement this information with additional relevant data and to consult a financial advisor prior to an investment decision. Accordingly, Redeye accepts no liability for any loss or damage resulting from the use of this analysis. Potential conflict of interest Redeye’s research department is regulated by operational and administrative rules established to avoid conflicts of interest and to ensure the objectivity and independence of its analysts. The following applies:
For companies that are the subject of Redeye’s research analysis, the applicable rules include those established by the Swedish Financial Supervisory Authority pertaining to investment recommendations and the handling of conflicts of interest. Furthermore, Redeye employees are not allowed to trade in financial instruments of the company in question, effective from 30 days before its covered company comes with financial reports, such as quarterly reports, year-end reports, or the like, to the date Redeye publishes its analysis plus two trading days after this date.
An analyst may not engage in corporate finance transactions without the express approval of management, and may not receive any remuneration directly linked to such transactions.
Redeye may carry out an analysis upon commission or in exchange for payment from the company that is the subject of the analysis, or from an underwriting institution in conjunction with a merger and acquisition (M&A) deal, new share issue or a public listing. Readers of these reports should assume that Redeye may have received or will receive remuneration from the company/companies cited in the report for the performance of financial advisory services. Such remuneration is of a predetermined amount and is not dependent on the content of the analysis.
Redeye’s research coverage Redeye’s research analyses consist of case-based analyses, which imply that the frequency of the analytical reports may vary over time. Unless otherwise expressly stated in the report, the analysis is updated when considered necessary by the research department, for example in the event of significant changes in market conditions or events related to the issuer/the financial instrument. Recommendation structure Redeye does not issue any investment recommendations for fundamental analysis. However, Redeye has developed a proprietary analysis and rating model, Redeye Rating, in which each company is analyzed and evaluated. This analysis aims to provide an independent assessment of the company in question, its opportunities, risks, etc. The purpose is to provide an objective and professional set of data for owners and investors to use in their decision-making. Redeye Rating (2019-03-26)
Duplication and distribution This document may not be duplicated, reproduced or copied for purposes other than personal use. The document may not be distributed to physical or legal entities that are citizens of or domiciled in any country in which such distribution is prohibited according to applicable laws or other regulations. Copyright Redeye AB.
Rating Management Ownership Profit outlook Profitability Financial Strength
7,5p - 10,0p 49 46 20 11 20
3,5p - 7,0p 91 89 121 42 56
0,0p - 3,0p 14 19 13 101 78
Company N 154 154 154 154 154
CONFLICT OF INTERESTS
Arvid Necander : No Mathias Spinnars: No
