Visiodent Integration And Allianz Contract Will Improve Future Profitability In Healthcare Software

Key Takeaways

• Internalizing the workforce, especially for Allianz, could cut external costs and boost profitability.
  
• The simpler software launch may enhance market share and revenue within the French healthcare software market.
  
• Increased net debt from an acquisition and restructuring challenges could hinder financial flexibility, leading to higher expenses and pressure on net margins and revenue.

Catalysts

Operates as a technology and services company in the field of digital data flow management for healthcare ecosystem and B2B, and business software publisher for healthcare and insurance professionals in France, other European countries, and internationally.

• The internalization of the workforce for the Allianz contract, notably in Morocco, is expected to reduce external expenses tied to subcontractors, potentially improving net margins and profitability.
  
• The ramp-up of the Allianz contract, including software migrations, is anticipated to enhance operational efficiency and lead to improved profitability starting in Q4 2024, positively impacting earnings.
  
• The integration of Visiodent is projected to contribute positively to revenue growth and EBIT, supporting Cegedim Santé toward break-even in the coming years.
  
• The development and launch of a simpler software solution to directly compete with players like Doctolib could capture market share and drive revenue growth within the French healthcare software market.
  
• Improvements in financial results due to increased dividends and financial profits can contribute to better net earnings, aiding overall financial health and stock valuation.

Cegedim Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Cegedim's revenue will grow by 3.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from -2.2% today to 2.7% in 3 years time.
• Analysts expect earnings to reach €20.1 million (and earnings per share of €1.47) by about July 2028, up from €-14.7 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 12.7x on those 2028 earnings, up from -10.0x today. This future PE is lower than the current PE for the GB Healthcare Services industry at 20.1x.
• 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 12.02%, as per the Simply Wall St company report.

Cegedim Future Earnings Per Share Growth

Risks

• The increased net debt to €213.9 million, primarily due to the Visiodent acquisition, could impact future financial flexibility and impose higher interest expenses, negatively affecting net earnings.
  
• The recurring operating income decreased due to higher-than-expected R&D amortization, which may continue to put pressure on net margins if R&D investments do not yield sufficient returns.
  
• Challenges with the U.K. market exit and restructuring, particularly the high restructuring fees and slower-than-expected migration of competitors' software in the U.K. and Scotland, may prolong losses and negatively affect overall revenue and profitability.
  
• Despite efforts to reduce costs for the Allianz contract by transitioning from external subcontractors in Mauritius to internal teams in Morocco, initial dual costs have resulted in losses, which might continue if the transition is not executed effectively, affecting net margins.
  
• The Data subdivision underperformed due to declining international sales, highlighting vulnerability to external market conditions; this could exert downward pressure on overall revenue and necessitate adjustments to offset fixed costs.

Valuation

• The analysts have a consensus price target of €14.0 for Cegedim 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 €17.0, and the most bearish reporting a price target of just €11.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €734.0 million, earnings will come to €20.1 million, and it would be trading on a PE ratio of 12.7x, assuming you use a discount rate of 12.0%.
• Given the current share price of €10.7, the analyst price target of €14.0 is 23.6% 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.