We see a stable Q4 report from Kontigo Care, in which the reported figures came in slightly softer than we anticipated. The trimmed municipality’s budgets persist as challenges affecting topline growth and will likely continue throughout this year. Meanwhile, the launch of Previct Drugs in 2024 is expected to attract new customer segments. Notable highlights include an all-time high Monthly Recurring Revenue (MRR) and agreements now covering approximately 60% of municipalities in Sweden.

Kontigo Care posted a positive growth rate of 4% y/y and 4% q/q, resulting in net sales of SEK7.4m, below our expectations of SEK7.9m, resulting in a -6% deviation. For FY’23, net sales were SEK28.9, representing a y/y of 2%. During FY’23, net sales amounted to SEK27.1m (26.1) in Sweden, SEK1.8m (1.8) in Finland and SEK0.0m (0.5) MSEK in the Netherlands.

EBIT of -SEK0.3m in Q4’23 is below our SEK2.7m estimate, SEK3m lower activated expenses, and a slightly softer topline explain the deviation.

During the quarter, the company secured three new frame agreements with municipalities. Kontigo Care now has agreements with c60% of the municipalities in Sweden. The base of active licenses increased during the quarter from 888 to 981. MRR (Monthly Recurring Revenue) was SEK2.46m, an 8% q/q growth and on par with our estimate.

The gross margin reached an all-time high at 90%, historically hovering around 85%. However, the gross margin varies slightly between quarters due to component purchases not occurring to the same extent every quarter. For FY’23, the gross margin was 85%.
Operating expenses (OPEX) amounted to SEK10.3m (8.5), slightly exceeding our projected SEK9.7m, primarily due to increased personnel costs stemming from the change in CEO and one-time expenses related to the head office move. EBITDA- CAPEX was -SEK2.7m.
Kontigo Care uses capitalisation – i.e., it records an asset (in this case, development costs) on the balance sheet instead of immediately expensing this on the income statement. In Q4, Kontigo Care activated SEK3.2.0m for development (mainly derived from the new Previct Drug application), while D&A amounted to cSEK0.9m (amortisation amounted to SEK0.7m).

Cash flow from operating activities was cSEK0.3m. CAPEX was SEK3.2; by the end of the quarter, cash and cash equivalents amounted to cSEK9.9m.

Despite achieving an all-time high in Monthly Recurring Revenue (MRR) at the end of Q4, we anticipate a challenging 2024 ahead in terms of growth due to reduced municipal budgets. Meanwhile, an agreement with the first corporate healthcare customer was signed during Q4’23, and we believe that a part of the new CEO Ulrika Giers’s strategy is to attract new customer segments. The launch of Previct Drug during ’24 will likely help attract new customer segments and has the potential to become pivotal for Kontigo Care. Adding this functionality to Previct will be important for future expansion and growth, especially in markets outside Sweden, where Kontigo Care has been struggling historically. In summary, we anticipate that 2024 will be a challenging year in terms of sales growth for Kontigo Care. However, operationally, it is expected to be very active as the new CEO executes her strategic plan and continues to lay the groundwork for future growth.

We have adjusted our Net Sales projections for ‘24-25e, reducing them by 17% and 11%, respectively. Further, we have increased Depreciation & Amortisation (D&A) expenses due to the launch of Previct Drugs in 2024. We are now factoring in a growth rate of 3% for 2024e, aligning with the 2% growth in 2023. Details of our revised estimates for the years 2023-26e are summarised in the table below:

We value Kontigo Care using a DCF valuation based on certain long-term sales growth and margin assumptions. Our Base Case is now at SEK6.5 (8.0) per share. Our fair value range is SEK1.0 per share to SEK14 (previously: SEK1.6-SEK17). Our base case is derived from the financial forecasts in the table above and the long-term assumptions outlined in the table below.