Dignitana Q2: Resilient Business
Redeye Research Note 2020/08/21
Total revenue in Q2 amounted to SEK 11.4 (11.9m), corresponding to a decrease of only 4% in SEK. We did expect a larger drop and expected sales of SEK 9,6m. We clearly took down our expectations too much in respect to the effects of the Covid-19 situation. Growth will likely continue to vary between quarters as this is an early phase of commercialization and obviously the Covid-19 effect during the second quarter was difficult to judge. We adjust revenues upwards slightly after the report due to the better than expected sales figure for the quarter. The company did manage to continue to increase revenues in the US amidst the present difficult conditions, this shows that the strength of the business model and its resilient nature. The restrictions on deliveries has however meant that deliveries of new equipment fell sharply during the quarter but the increasing recurring revenues are compensating for this. This is something that we will monitoring going forward but we believe that this will be sorted during the rest of the year.
The gross margin was 86% (72%), (excluding other income) The outcome was better than our forecast, assuming a margin of 68%. While we caution interpreting results from a single quarter, we are encouraged by the higher-than-expected margin which may be distorted by the current situation.
OPEX grew by 20%, resulting in EBIT of SEK -9.0m (-7.1m). Although very much in line with our expectation of SEK- 9.3m the external costs were lower than expected at (SEK -7.3m vs SEK -8.1m) while personnel expenses were higher than our forecast.
The cash flow was SEK -2.0m (-10.2m) and the company had a cash balance of SEK 7.4m at the end of the quarter.
The Average Daily Treatment Revenue (ADTR) reached SEK 126t which represented an increase of 27 % over the same period in 2019 and more impressive considering the environment we are currently in an increase from the first quarter of 7%
We remain optimistic about the long-term growth prospects. The Q2 development was better than could be expected considering the circumstances. The smaller drop in sales and growth in the USA during the quarter is a signal of strength and shows that the business model is working. This underscores that Dignitana have laid down the groundwork for a period of strong growth when Covid-19 effects subsides. We adjust our topline estimates for the full year 2020 due to the stronger than expected Q2 and subsequently to EBIT as well. We also like the fact that the company has used the period of uncertainty to strenghten the management team both in the US as well as new board members with great credentials.
We do not change our motivated value of SEK 11 per share (Base Case) which reflects our long-term positive view for Dignitana.