Germany e-Rx Adoption And European Expansion Will Unlock New Opportunities

Key Takeaways

• Strategic expansion and marketing efforts, including e-Rx adoption, enhance market access, customer acquisition, and engagement, potentially boosting revenue growth and market leadership.
  
• Improved logistics and marketplace operations drive better margins and profitability, with a growing customer base and larger order sizes fueling future revenue and earnings.
  
• Leadership changes, cash flow challenges, and strategic investments could strain Redcare's financial stability, impacting short-term margins and long-term growth potential.

Catalysts

Operates in online pharmacy business in the Netherlands, Germany, Italy, Belgium, Switzerland, Austria, and France.

• The implementation of e-Rx as a nationwide standard in Germany in 2024 has significantly increased market access and adoption for Redcare Pharmacy, potentially boosting future revenue growth as more patients utilize digital prescriptions.
  
• Redcare's strategic marketing campaign and enhanced customer-centric product offerings, including a fully digital patient journey and CardLink, have accelerated customer acquisition and engagement, which could translate into higher revenue and improved net margins through increased customer retention and repeat orders.
  
• Redcare's expansion into additional international markets and strengthened market leadership across Germany, Italy, and Belgium shows a strong growth trajectory, likely increasing overall revenue and market share in the coming years.
  
• The successful scaling and efficiency improvements in logistics and marketplace operations are expected to drive better operating margins and profitability, supporting future earnings growth.
  
• The increase in active customers to 12.5 million by the end of 2024 and the substantial growth in the Rx order basket size indicate the potential for increased average order value and higher net margins, fueling future revenue and earnings.

Redcare Pharmacy Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Redcare Pharmacy's revenue will grow by 22.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from -1.9% today to 1.6% in 3 years time.
• Analysts expect earnings to reach €70.4 million (and earnings per share of €3.49) by about April 2028, up from €-45.5 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting €108.1 million in earnings, and the most bearish expecting €30.9 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 58.0x on those 2028 earnings, up from -55.8x today. This future PE is greater than the current PE for the GB Consumer Retailing industry at 19.4x.
• Analysts expect the number of shares outstanding to grow by 1.86% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 4.71%, as per the Simply Wall St company report.

Redcare Pharmacy Future Earnings Per Share Growth

Risks

• The shift to e-prescriptions in Germany posed initial uncertainty, with concerns about adoption rates and how discrimination-free access could be secured, potentially affecting Redcare's revenue streams.
  
• Changes in Redcare's leadership team, with two board members leaving and successors stepping in, could impact strategic consistency and operational stability, influencing future earnings.
  
• A decrease in gross profit margins, particularly highlighted in Q4 2024, reflects the impact of strategic investments and market mix, indicating potential pressures on net margins if trends continue.
  
• Negative cash flow (minus €26 million) despite operational growth indicates financial strain, affecting overall liquidity and possibly limiting future investment capacity.
  
• Ongoing strategic investments, such as the €100 million automation project, require significant capital and may not immediately enhance margins or revenue, impacting short-term earnings and cash flow.

Valuation

• The analysts have a consensus price target of €169.364 for Redcare Pharmacy based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €214.0, and the most bearish reporting a price target of just €93.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €4.3 billion, earnings will come to €70.4 million, and it would be trading on a PE ratio of 58.0x, assuming you use a discount rate of 4.7%.
• Given the current share price of €123.2, the analyst price target of €169.36 is 27.3% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.