Nordic Healthcare Demand And ERP Program Will Drive Stronger Long Term Earnings

Catalysts

About Oriola Oyj

Oriola Oyj is a Nordic healthcare and pharmaceutical distribution company that ensures the efficient flow of medicines and health products to pharmacies, hospitals and other care providers.

What are the underlying business or industry changes driving this perspective?

• Continued structural growth in pharmaceutical distribution volumes in Sweden and stable demand in Finland, combined with Oriola retaining all key customer contracts and onboarding new ones, is expected to support sustained top line expansion and improving adjusted EBITDA.
• Ongoing ERP implementation, with the main phase running through 2025 to 2027 and benefits expected to start materializing in 2027 and 2028, is likely to enhance process efficiency, reduce manual work and lower operating expenses. This should lift net margins once the project cost burden ends.
• Rising healthcare needs and vaccine usage in the Nordics, together with Oriola’s role in high volume vaccine distribution and expanded warehouse capacity, position the company to capture incremental revenue while leveraging fixed cost absorption to improve earnings.
• Acceleration of e-commerce and digital solutions in pharmacy and healthcare, supported by Kronans Apotek’s online sales growth and Oriola’s double digit growth in digital and data advisory services, is expected to create higher margin revenue streams and support long term earnings growth.
• Optimization of the Wholesale mix, including growth in parallel imports of weight loss medicines and expansion in special licensed medicines for veterinarians, together with tighter cost control, is intended to gradually convert strong net sales growth into higher segment EBITDA and improved group profitability.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Oriola Oyj's revenue will grow by 5.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from -1.5% today to 1.1% in 3 years time.
• Analysts expect earnings to reach €23.6 million (and earnings per share of €0.13) by about December 2028, up from €-27.1 million today.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 12.5x on those 2028 earnings, up from -7.5x today. This future PE is greater than the current PE for the GB Healthcare industry at 10.6x.
• Analysts expect the number of shares outstanding to grow by 2.11% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.67%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The multi year ERP implementation is already depressing the equity ratio to about 13% and inflating adjusting items. If costs overrun or benefits in 2027 and 2028 are delayed or smaller than expected, this could further weaken equity, constrain dividends and keep reported earnings under pressure.
• Wholesale growth is currently driven by parallel imports of weight loss medicines and a product mix with structurally lower margins. If this mix persists or competition intensifies, net sales may rise without a corresponding uplift in EBITDA and net margins.
• Consumer confidence in Finland and Sweden remains weak and only shows tentative signs of improvement in Sweden. A prolonged period of subdued demand or pricing pressure in pharmacies could slow revenue growth and limit operating leverage.
• The equity ratio is low and recent impairments and adjusting items have pushed net profit to about negative EUR 9.3 million. Any further write downs in assets such as the Kronans Apotek joint venture or additional restructuring could erode equity further and delay a sustainable recovery in earnings.
• The business model is highly volume driven with negative working capital and tight cost control. Any disruption in supply chain stability, vaccine delivery timing or loss of expected large customer contracts from 2026 onward could quickly reverse EBITDA momentum and dilute sales margin improvements.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of €1.27 for Oriola Oyj based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be €2.2 billion, earnings will come to €23.6 million, and it would be trading on a PE ratio of 12.5x, assuming you use a discount rate of 5.7%.
  
• Given the current share price of €1.09, the analyst price target of €1.27 is 13.6% 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.