Kela 65 Scheme And Digital Health Will Broaden Patient Access

Key Takeaways

• Expansion into new public and private healthcare initiatives, as well as high-demand segments, positions the company for sustainable revenue growth and margin enhancement.
  
• Accelerated digital transformation and operational efficiencies, alongside strategic M&A, support improved cost structure and increased share of higher-margin services.
  
• Heavy reliance on the Finnish market, softening occupational health demand, digital execution risks, and rising labor costs threaten long-term revenue growth, margins, and market share stability.

Catalysts

Provides occupational healthcare services in Finland, Sweden, and Estonia.

• The introduction of the Kela 65 scheme, which allows Finnish citizens over 65 to access private healthcare at public prices, is expected to materially increase patient volumes for Terveystalo, leveraging demographic shifts and supporting sustainable revenue growth and a positive margin impact due to healthy appointment pricing.
  
• Ongoing investments in digital health technology-including enhancements to service delivery, customer steering, automation, and AI within core systems-are set to improve operational efficiency and cost structure, which should drive higher net margins as digital channels gain share over brick-and-mortar and as digital transformation accelerates.
  
• The increasing demand for chronic disease management and recurring care, fueled by aging and modern lifestyle factors, is likely to underpin steady long-term outpatient and diagnostic revenue streams, offering revenue stability and opportunities for higher-margin service mix optimization.
  
• The revival of public sector outsourcing opportunities and increased activity in tendering for healthcare services present avenues for Terveystalo to win new contracts, supporting top-line growth and potential earnings expansion via improved capacity utilization and operational leverage.
  
• Sustained focus on M&A within Finland's fragmented private healthcare market, coupled with targeted expansion in high-growth segments like dental, mental health, and occupational health, increases addressable markets and provides catalysts for revenue growth and margin improvement through synergies and operational scale.

Terveystalo Oyj Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Terveystalo Oyj's revenue will grow by 2.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 6.8% today to 9.3% in 3 years time.
• Analysts expect earnings to reach €132.1 million (and earnings per share of €1.04) by about August 2028, up from €89.4 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 14.3x on those 2028 earnings, down from 15.0x today. This future PE is greater than the current PE for the FI Healthcare industry at 12.9x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.49%, as per the Simply Wall St company report.

Terveystalo Oyj Future Earnings Per Share Growth

Risks

• Terveystalo's core Finnish market focus increases vulnerability to local regulatory changes, economic downturns, and evolving public sector competition, as evidenced by shrinking occupational health contracts and changing customer buying behavior, which could increase revenue volatility and limit top-line growth.
  
• Persistent softness in occupational health demand (a key recurring revenue stream) and declining contracted employee numbers signal structural pressure-particularly as corporate clients become more cost sensitive-potentially reducing long-term revenue growth and net margins.
  
• The company's emphasis on ongoing digital transformation carries execution risk; slower-than-anticipated scale-up or failure to keep pace with digital-native competitors could erode patient volumes, lower market share, and compress future revenues and earnings.
  
• Loss and termination of some outsourcing and corporate contracts, along with greater volatility and reduced public sector outsourcing volumes due to well-being counties ramping up in-house operations, suggest that revenue from portfolio businesses is at risk and net margin improvements may not be sustainable if volume weakness persists.
  
• Labor cost inflation and workforce shortages-evident in the need for efficiency improvements and technology investment-could drive up the fixed cost base, compress operating margins, especially if demand remains subdued or shifts more rapidly to lower-margin telehealth services than the company can offset with efficiency gains.

Valuation

• The analysts have a consensus price target of €12.76 for Terveystalo Oyj based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €1.4 billion, earnings will come to €132.1 million, and it would be trading on a PE ratio of 14.3x, assuming you use a discount rate of 5.5%.
• Given the current share price of €10.58, the analyst price target of €12.76 is 17.1% 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.