Pihlajalinna: Getting ready for the FCCA’s decision – Evli Research

Non-urgent and oral healthcare took hit from COVID-19

Pihlajalinna’s Jan-March result was rather good even though it slightly missed our expectations. Q1 revenue increased by 0.4% y/y to EUR 133m (EUR 135m/133m Evli/cons). Adj. EBIT landed at EUR 4.2m (EUR 5.2m/4.4m Evli/cons). According to the management, revenue and profitability developed as expected during the first months of the year but the coronavirus and the emergency laws that came into force in mid-March had a negative impact on the company’s business. Negative impacts were especially seen on the demand of non-urgent healthcare and oral healthcare. Fitness centers were also closed at the end of March. The decreased customer flows reduced the invoicing by approx. EUR 3.3m.

Demand should start slowly to recover

We expect the coronavirus had the most negative impacts on Pihlajalinna’s business in April due to the movement restrictions but the demand should start slowly to recover as the government is starting to ease the restrictions. Also, the management of Pihlajalinna indicated that some signs of recovering demand have already been seen. During these unexceptional times, complete outsourcings and other fixed-price invoicing have supported the company as the profitability of these kinds of contracts normally remains stable, even during times of lower demand. Also, the coronavirus should not have significant impacts on the demand of housing services for the elderly or recruitment services. Thus, more than half of the business operations are expected to remain stable during this time. The outlook for H2 still remains blurry as the visibility around the situation is very weak. Therefore, guidance for 20E was not given at this point.

“HOLD” (“BUY”) with TP of EUR 16

We have cut our 20E adj. EBIT estimate by ~20% while making only minor adjustments to our revenue expectation. We expect 20E revenue of EUR 517m (-0.3% y/y) and adj. EBIT of EUR 21.6m (3% y/y). The tender offer by Mehiläinen is currently being under review of the FCCA (in the phase two investigation). The investigation process should be completed at the end of Q2 or latest during Q3. We keep our TP at the tender offer price of EUR 16 and downgrade our rating to “HOLD” (prev. “BUY”).