Last friday, Optomed released its Q4 2022 report. Full-year sales came in at EUR14.7m (EUR14.9m) with a gross margin of 63% (excluding other operating income). Our sales estimate of EUR14.5 was in line with the actual sales and our gross margin estimate of 63%. Full-year operating expenses amounted to EUR-11.2m, and depreciation, amortization, and impairment losses stood for EUR-3.1m. This results in an EBIT of EUR-5.1m (EUR4.9m) compared to our estimate of EUR-4.9m.

Moreover, at the end of the period, cash flow from operating activities was EUR-2.5m for the full year. The cash and cash equivalents position was EUR8.5m at the end of the period. In our view, we do not see any imminent capital need for Optomed and expect the company to become profitable in 2024e.

During the last quarter, the devices segment revenue decreased by 4% to EUR1.28m (EUR1.33m). The US was the largest market, and we also learned that the Chinese market remains slow. For the full-year, the sales from the devices segment amounted to EUR5.4m (EUR5.8m) In China, the sales were around EUR1.5m lower than the previous year, and we continue to have low expectations of the Chinese market as we move into 2023.

The software segment has been very strong during the last quarter of 2022 with a 23.2% growth compared to Q4 2021. The sales from the segment came in at EUR2.7m (EUR2.2m), and the strong performance of the healthcare solution business mainly drove the increase.

For the full year, the sales were similar to 2021, with sales of EUR9.3m (EUR9.0m) with an EBITDA of EUR2.1m which was a 12% increase to 2021.

We believe in a stronger 2023e and growth in both the device and software segments. However, the main event for the year is the potential FDA approval, which we expect a decision during Q2. We argue there is a high possibility of approval, and we are positive about the US strategy and launch that we believe will start directly after the potential approval. The share price has significantly declined since its all-time high in 2021 (c75% decline). We believe the share is currently trading at an attractive entry point for new investors, mainly due to the arguably low valuation and the upcoming FDA approval which, in our view, will have a major impact on the share price.

We expect to see a larger growth during the second half of 2023, including US sales. We estimate 2023e sales of EUR16.8m and that the company will become EBITDA break-even during the year. As mentioned, we believe in a stronger 2023, and the year is highly important for the company. As we have not made any changes to our estimates, we reiterate our base case of EUR8.

Our valuation of SenzaGen is based on a discounted cash flow model. Our analysis suggests a base case of EUR8, representing 91% upside from the current share price levels.

At Redeye, we use three different scenarios to value a company’s stock. These provide a more dynamic view of the case.

In our base case of EUR8, we assume a European market value in the device segment of approximately EUR21m. We estimate Optomed will have 16% market penetration in 2023e and that the market will grow by 7% across the entire forecast period. Moreover, we assume Optomed’s market penetration will increase during the forecast period, arriving at 20% penetration at the end of the period. Optomed’s European software segment has been strong in the past, and we expect ongoing 10% annual growth. The Chinese market has been turbulent, and in our base case, we expect this to continue, resulting in low expectations. As Optomed is developing its business in other parts of the world, we believe its RoW sales may increase significantly in the future. However, as we do not expect this in the coming years and because of the uncertainty, we exclude a potential expansion and only apply low sales numbers to this segment for our forecast period (EUR 0.19m for 2023e, with 7.9% annual growth).

Moreover, we believe the US business model is exciting and vital for the case. In our base case scenario, we assume a 90% LoA by the FDA and estimate that Optomed will have 7,000 subscribers in the US by 2030e. Although we expect the number of subscribers can grower far larger, we would like to get a picture of the interest and demand before assuming higher numbers. We expect to get a better picture during 2023 as the first subscribers have tried and evaluated the offering.

In our bull case scenario of EUR17, we assume a faster ramp-up in sales in all segments. Our assumptions are summarized in the list below:

▪ European device segment: 7% market CAGR and 16-25% market penetration between 2023e and 2030e.

▪ European software segment: Annual growth of 15% during the entire forecast period.

 ▪ Rest of the world: See base case

▪ US: Faster subscription ramp-up, with a total of 11,000 subscribers by 2030e. In this scenario, we assume a 100% LoA.

In our bear case scenario of EUR1.5, we assume a slower sales ramp-up in all segments. Our assumptions are summarized in the list below:

▪ European device segment: 7% market CAGR and 15% market penetration between 2023e and 2030e.

▪ European software segment: Annual growth of 7% during the entire forecast period.

▪ Rest of the world: See base case.

▪ US: In this scenario, we assume a 0% LoA. However, we expect device and software sales in the US to continue, assuming 10% growth during the forecast period.

In addition to our DCF valuation, we offer a peer group analysis that compares Optomed with other medtech companies in the Nordic region. These ten companies have a similar enterprise value to Optomed. We argue that the best measurement is EV/Sales, as Optomed is not currently profitable.

We argue it is challenging to find similar peers to Optomed, and we observe that the company’s EV/Sales multiples are fairly in line with the selected peers. However, the most similar company to Optomed is Revenio Group, which works within the same segment. Even if Revenio is larger than Optomed and is in a later stage, its EV/Sales multiples are two times higher. We believe such a difference is too massive and argue that the Optomed share is currently trading at low levels, especially due to the high potential in the US.