Acquisitions Of Pridok And AmbulApps Will Strengthen Product Portfolio And Operations In Northern Europe

Key Takeaways

• The strategic focus on AI and cloud-based solutions aims to enhance efficiency and margins through innovative digital health advancements.
  
• Strategic partnerships and acquisitions aim to boost revenue growth and operational strength, while increasing recurring revenues enhances financial stability and margins.
  
• Dependence on regulatory approvals for a key partnership with CVC Capital Partners poses a risk to strategic growth and future revenues.

Catalysts

Provides e-health services worldwide.

• The acquisition of Pridok and AmbulApps is expected to enhance CGM's product portfolio and operational strength, potentially driving revenue growth in Northern Europe and through improved patient data management.
  
• Integration of AI and cloud-based solutions such as the AI-driven CGM ONE and CGM STELLA indicates a focus on innovation that could improve operational efficiency and margins through advanced digital health solutions.
  
• The partnership with CVC Capital Partners brings potential for strategic investment and global network leverage, likely supporting future revenue growth and operational capacity expansion.
  
• The focus on increasing recurring revenues, which grew by 5% in 2024, suggests a shift towards more predictable and stable revenue streams, enhancing overall financial stability and potentially leading to higher long-term margins.
  
• Improvement in working capital management and expected higher free cash flow in 2025 indicate operational efficiency measures that could positively impact net margin and financial health.

CompuGroup Medical SE KGaA Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming CompuGroup Medical SE KGaA's revenue will grow by 1.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.9% today to 6.2% in 3 years time.
• Analysts expect earnings to reach €78.1 million (and earnings per share of €1.5) by about May 2028, up from €34.6 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 16.9x on those 2028 earnings, down from 33.2x today. This future PE is greater than the current PE for the GB Healthcare Services industry at 10.6x.
• Analysts expect the number of shares outstanding to decline by 0.81% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.53%, as per the Simply Wall St company report.

CompuGroup Medical SE KGaA Future Earnings Per Share Growth

Risks

• Decline in onetime revenues due to slower progress of projects and comparison against high levels in the previous year can negatively impact overall revenue growth.
  
• Ongoing investments in product innovation leading to a decrease in adjusted EBITDA margins might constrain net margins.
  
• Higher tax payments than expected contributed to adjusted EPS falling below the revised guidance range, affecting earnings.
  
• Increase in net debt levels alongside leverage above 3x EBITDA could strain the financial flexibility and affect profitability.
  
• Dependence on regulatory approvals for the partnership with CVC Capital Partners, including ongoing foreign directive investment clearances, presents potential risk to strategic growth initiatives impacting future revenues.

Valuation

• The analysts have a consensus price target of €21.278 for CompuGroup Medical SE KGaA 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 €29.0, and the most bearish reporting a price target of just €10.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €1.3 billion, earnings will come to €78.1 million, and it would be trading on a PE ratio of 16.9x, assuming you use a discount rate of 7.5%.
• Given the current share price of €22.18, the analyst price target of €21.28 is 4.2% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• 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.