AI Adoption And Cloud Migration Will Support Long-Term Earnings Improvement And Margin Expansion

Catalysts

About Nordhealth

Nordhealth provides cloud based veterinary and therapy practice management software with integrated AI tools to improve clinical workflows and efficiency.

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

• Ongoing shift from legacy on premise systems to cloud platforms in veterinary and therapy practices supports continued migrations of Sanimalis, Vetvision, Vetera and Aspit onto Provet and the unified Therapy platform, which should lift recurring revenue growth and raise average revenue per clinic as legacy products are retired.
• Rising adoption of AI in clinical workflows, including the AI Scribe and planned AI receptionist and automation features, is expanding the value per user and can materially increase average revenue per user while also lowering support and implementation costs, supporting both revenue and net margin expansion.
• Growing consolidation among veterinary providers and the need for scalable enterprise software positions Provet as a preferred platform for large groups such as AmeriVet and Vets 4 Pets. Continued rollouts and new enterprise wins in the U.K., Germany and other growth markets should drive high net retention and stronger earnings visibility.
• Geographic expansion beyond the Nordics, supported by dedicated investment in DACH localization and a strengthened local go to market team, opens a large underpenetrated market where interest in modern cloud solutions is increasing. This should accelerate top line growth and improve operating leverage as fixed product costs are spread over more customers.
• Continuous AI driven product improvements that streamline workflows, reduce the number of clicks for common tasks and automate documentation are likely to enhance customer satisfaction and keep churn at low single digits, sustaining attractive lifetime value to customer acquisition cost economics and supporting long term earnings growth.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Nordhealth's revenue will grow by 14.8% annually over the next 3 years.
• Analysts are not forecasting that Nordhealth will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Nordhealth's profit margin will increase from -21.2% to the average NO Healthcare Services industry of 5.3% in 3 years.
• If Nordhealth's profit margin were to converge on the industry average, you could expect earnings to reach €4.0 million (and earnings per share of €0.05) by about December 2028, up from €-10.7 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 83.3x on those 2028 earnings, up from -23.2x today. This future PE is greater than the current PE for the NO Healthcare Services industry at 76.6x.
• Analysts expect the number of shares outstanding to grow by 0.06% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.46%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The company is deliberately sacrificing near term profitability to reaccelerate R&D and sales investments, with adjusted EBITDA minus CapEx still negative 2 million year to date and guidance of up to negative 4 million, so if operating leverage does not materialize as expected, ongoing cash outflows could weigh on sentiment and pressure earnings and net margins.
• Management is leaning heavily on AI features and DACH localization as major growth engines, but falling market prices for AI Scribe tools and uncertainty around the timing and scale of adoption mean that AI upsell may not deliver the anticipated lift in average revenue per user and cost savings, which would constrain revenue growth and limit margin expansion.
• Large scale, multi year migrations of legacy platforms such as Aspit and Vetera remain incomplete, with thousands of users still on older, more expensive systems and elevated customer support and hosting costs, so delays or customer dissatisfaction during migration could increase churn and keep gross margins and earnings under pressure for longer than expected.
• Nordhealth is increasingly exposed to enterprise customers and international markets, with growth outside the Nordics and large consolidators like AmeriVet and Vets 4 Pets driving a significant share of ARR, so any slowdown in veterinary consolidation, competitive wins by AI native practice management systems or implementation delays could reduce upsell driven net retention and dampen recurring revenue growth.
• The long term target of roughly 20 percent EBITDA minus CapEx margins by 2027 assumes that AI driven efficiency gains and scale will offset current cost inflation in areas like cloud hosting, customer service and product development. If these savings prove smaller or slower than planned, investors may reassess the valuation as structurally lower margin, which would weigh on the share price through weaker expected earnings and profitability.

Valuation

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

• The analysts have a consensus price target of NOK40.0 for Nordhealth 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 €76.2 million, earnings will come to €4.0 million, and it would be trading on a PE ratio of 83.3x, assuming you use a discount rate of 7.5%.
  
• Given the current share price of NOK36.8, the analyst price target of NOK40.0 is 8.0% higher. 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.