Analytical Report - VOXEL – WSE:VOX

This report is prepared for the Warsaw Stock Exchange SA within the framework of the Analytical Coverage Support Program 3.0

Sector: Health care & biotechnology

Market Cap: US$ 76.2 m

Fundamental rating: Buy (↑)

Bloomberg code: VOX PW

Market relative: Overweight (↑)

Av. daily turnover: US$ 0.01 m

Price: PLN 34.90

12M range: PLN 33.10-53.20

12M EFV: PLN 46.4 (→)

Free float: 51%

Recommended action

We upgrade our recommendations for the equities of Voxel: LT fundamental and ST relative to Buy (from Hold) and Overweight (from Underweight), respectively.

We expect 3Q22 financial results higher yoy and materially higher qoq given a medical services pricing increase (by 30% on average with respect to diagnostics from 3Q22) and lower losses generated by the hospital business. We believe that a high demand for MRI, PET, and SPECT scans continues with CT procedure deliberately not supported by the Company, in line with the strategic assumptions. We assume a material rise in the medical staff remuneration from 4Q22 on, albeit its impact on the Group’s results should be below the impact of medical services pricing increase. Thus, we raise our financial forecasts for the Group for FY22 and onwards. In our view, it is likely that the Group may write off inventories worth several million PLN; we assume PLN 4 million in 4Q22 as a one-off.

3Q22 financial results preview

In 3Q22 we assume Voxel performed 74,000 procedures altogether, (flat yoy) including 24,000 (down 9% yoy)/ 42,000 (up 4% yoy)/ 4,000 (up 3% yoy)/ 4,000 (up 21% yoy) CT/ MRI/PET/ SPECT scans. The Company concentrates on the development in the area of MRI, PET, and SPECT procedures while CT procedures are not a priority, which is in line with the Group’s strategy, and this approach should be visible already in 3Q22. We assume a significant increase of average prices, by 20-40% depending on a diagnostic procedure. We estimate Voxel’s 3Q22 non-consolidated revenues at PLN 58 million (up 29% yoy). We forecast 3Q22 revenues of RP/ Scanix/ Exira/ Vito-Med/ Alteris to reach PLN 2/6/3/7/26 million and expect the Group’s consolidated revenues to arrive at PLN 97 million (up 3% yoy). It is worth reminding that testing for SARS-CoV-2 (34,000 tests performed) increased the Group’s revenues by c. PLN 10 million in 3Q22. The Group’s 3Q22 EBIT should reach PLN 16 million (up 15% yoy). A favorable diagnostic mix (more high margin procedures) should support the profitability. A medical staff salaries growth should be visible from 4Q22. Vito-Med’s hospital should continue generating losses, though they will be lower: we assume PLN -3 million vs PLN -5 million in 2Q22 (PLN -3 million generated by the hospital business and PLN -2 million related to SARS-CoV-2). We expect considerably higher net financial costs (doubling yoy) and forecast PLN 10 million of 3Q22 NI (up 8% yoy and up 109% qoq).

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Financial forecasts

The Group expects the diagnostic services volume to rise in 2022 and we believe this business segment will provide strong support for this year’s financials. This year’s backlog in Alteris is estimated at PLN 105 million and we believe it may slightly increase. Vito-Med closed 3 (out of 4) labs testing for SARS-CoV-2 as from April 1 NFZ stopped funding the testing performed by laboratories and mobile sites. The Company has been restructuring the hospital business in order to increase its revenues keeping the current level of employment and existing equipment base intact. Nevertheless, the hospital will burden this year’s results, we believe. We raise our financial forecasts for the Group incorporating higher pricing of medical services reimbursed by NFZ (in 3Q22 c. 30% rise (vs 1Q22) of pricing for the medical procedures which generate almost 70% of Voxel’s revenues; in 2023 we expect a comparable rise of prices for commercial clients). We assume this factor will outweigh a cost growth, especially related to the medical staff remuneration (we assume material increases from 4Q22) and expect yoy profitability improvement in 2023.

Valuation

Our 12M EFV for Voxel constituting a 50%–50% mix of DCF FCFF method and peer-relative valuation, stays intact at PLN 46.4 per share. The financial forecasts upgrade was offset by a RFR increase to 7% (from 6.5%) coupled with a market premium growth to 7% (from 6.0%) and a decline of forward peer multiples. The DCF FCF/ peer-relative valuation implies PLN 41/ PLN 52 per share.

Risk factors

1. Lower public spending on health care (high exposure to NFZ)

2. Medical services pricing increase too low

3. Change in the State’s policy regarding private medical contractors

4. Changes in the Company’s contracts with NFZ

5. Changes in legislation regarding the funding of hospitals/ treatments

6. The decline in the society’s affluence (FFS and commercial clients contribute up to 20% of Voxel’s revenues)

7. New innovative methods of cancer diagnostics/ treatment

8. Medical errors - reputation risk

9. Low and deteriorating availability of radiologists

10. Loss/low labor supply

11. Salary pressure (in particular of medical and IT staff)

12. Overblown investments

13. Lagging behind the technological progress in diagnostics

Catalysts

1. Aging society

2. The number of diagnostic imaging treatments below the standards in developed countries

3. Medical services pricing increase

4. Development of the market of private medical services

5. Improvement of the treatment mix (towards more advanced)

6. New medical services offered

7. Development of a profitable segment of pharmaceutical research (clinical trials)

8. Organic growth, new centers (high barriers to entry)

9. Acquisitions – economies of scale

10. Consolidation of the sector; potential acquisition target

11. AI development and new algorithms for test descriptions

12. IT software development for cloud diagnostics 4

Analyst: Sylwia Jaśkiewicz, CFA

GPW’s Analytical Coverage Support Programme 3.0