Coala Life is scheduled to release its Q4’23 report on 23 February. We anticipate that Net Sales will remain close to flat quarter-over-quarter at approximately SEK14m. We base this expectation on October and November’s released Key Performance Indicator (KPI) figures. Although we have yet to receive the KPI figures for December, we anticipate the patient base to be nearly flat by the end of December compared to November (3800 patients in RPM). This assumption considers lower sales activities due to holidays and potential seasonality effects on patient engagement.
Regarding the cost base, we project a slight impact on personnel costs due to the cost-saving program initiated in September. Additionally, we foresee a buildup in working capital due to the cancellation of several clinics in November. These cancellations were prompted by poor payments, leading us to expect an increase in current receivables, negatively impacting the cash flow. We also see a possibility of write-downs on current receivables, which will negatively affect the P&L.

In the prospectus accompanying the rights issue, we note that the initial financial objectives outlined in 2021, aiming for SEK 250 million in revenues by 2024, are deemed unlikely to be achieved . This revelation does not come as a surprise. However, the company maintains a positive outlook, anticipating sustained growth and positive operating income in the latter half of 2024, all while upholding a gross margin of over 80%. We take a more conservative approach to our forecast, as outlined below.

Our revised estimates consider the announced cost-saving measures, anticipated to be fully implemented by January 2024, leading to cost savings equivalent to approximately 30% of OPEX. Additionally, the updated estimates incorporate the recent advancements in patient ramp-up for Remote Patient Monitoring (RPM). Coala has recently announced a significant agreement, expecting to add 2000 new patients during H2. We anticipate that Coala will conclude 2024 with a patient base of around 8,000 and an estimated Annual Recurring Revenue (ARR) of approximately cUSD10m.

In the prospectus related to the rights issue, the board evaluates that a fully subscribed rights issue and the complete utilisation of the subscription options issued in the rights issue would furnish the necessary working capital for operations over the next twelve-month period. With a 73% subscription rate in the rights issue and an estimated SEK12m cash injection from the T03 warrants, we anticipate that Coala Life’s cash runway will be extended by approximately six months. However, it is crucial to acknowledge uncertainties associated with working capital tie-ups (due to lengthy payment cycles) and the utilisation rate of factoring solutions to enhance cash conversion. These factors have the potential to either shorten or extend the cash runway, and we will closely monitor working capital in the upcoming quarterly reports.

Our forecasts suggest that Coala Life will achieve break-even in the latter half of 2025. To attain this milestone, we anticipate a need for a Remote Patient Monitoring (RPM) patient base of approximately 11,000 to 13,000, with a USD110 average value of sales per patient/month.

The table below presents our estimate changes. It is worth noting that Coala Life’s coverage has been under review previously. Hence, the old figures date back to H1 ’23.

Due to rising interest rates, we have raised the risk-free rate from 2.5% to 3.0%, resulting in a WACC of 14.0% (13.5%). Following the recent rights issue and the impending subscription of the T03 warrants, we have adjusted our valuation to consider the estimated dilution and anticipated net proceeds. Moreover, our updated financial estimates have influenced the valuation. Recognising the estimated six-month cash runway, we have factored in an additional rights issue in H1 2024, amounting to approximately SEK40m, implying an increase of 800m shares. However, we recognise a directed share issue as another potential financial solution. The board was granted authorisation to raise the share count by 500m, deviating from the shareholders’ preferential rights, as decided in the general meeting in December 2023. Our new Base Case stands at SEK0.12 per share (1.3), the Bull Case at SEK0.7 (4.4), and the Bear Case at SEK0.05 (0.3).

We believe that the key catalyst to narrow the gap between the share price and our Base case is the ongoing ramp-up of patients, which is disclosed monthly in the KPI figures. Currently, Coala Life is trading at an EV/Sales multiple of 1.0x our 2024e. Our valuation is based on the financial forecasts in the table above (Base case) and long-term assumptions outlined in the table below.