Elos Medtech: Robotic surgery is doing wonders - ABG

Solid margin drove 18% EBIT beat
Elos Medtech reported yet another impressive quarter, with particularly strong EBIT margin of 14.6% (ABGSCe 12%), driving an EBIT beat of 18% vs. our expectations. Dental and Orthopedics was 51% and 58% better on EBIT vs. ABGSCe, respectively. Dental grew 174% y-o-y and reported 10% higher volumes, and 4.9% higher EBIT margin than we expected, as the dental market has returned to normal. While Orthopedics delivered 10% lower volumes than expected, its EBIT margin was a sizeable 8.3% higher than we expected, coming in at 18.9% (10.4% in Q1’21). It was largely a result of a beneficial sales mix with a large share of robotic surgery products combined with staffing efficiencies. Life Science performed worse than expected, with sales and EBIT 9% and 8% below what we expected, respectively, as a result of lower demand from hearing implant customers. Group sales were SEK 181m, up 53% y-o-y (63% organically) and up 6% sequentially.

Estimates up on higher profitability
We raise EBIT by 13% for both ’21 and ‘22e and by 12% for ‘23e, mainly derived from increased margin assumptions (EBIT margins up 1.7%-1.5% ’21-‘23e). We think that the demand was improving m-o-m throughout Q2 and expect demand to continue at a high level in H2. However, we note that Dental and Orthopedic volumes have moved quite unpredictably m-o-m during H1, and that any new precautions relating to COVID-19 (infection rates has begun to accelerate again since bottoming late June) may result in a rapid decline of volumes, which is not reflected in our estimates.

Quality company with strong end-markets at 5% FCF yield
Elos Medtech is offering solid exposure to strong growth trends in Robotic Surgery, Diabetes and IVF while also growing rapidly through own Dental products (14.5% of sales in Q2’20, up 121% y-o-y). We expect it will drive a 17% sales CAGR and a 27% EBIT CAGR ’20-‘23e. Our significant positive estimate revisions bring down the valuation significantly, now at 16x ‘22e EV/EBIT and 18x ‘21e EV/EBIT.

https://www.introduce.se/foretag/elos-medtech/Equity-research/2021/7/elos-medtech---robotic-surgery-is-doing-wonders/