Restructuring, Acquisitions And AI Integration Will Secure Operational Efficiency

Key Takeaways

• Restructuring completion and an enhanced acquisition strategy are expected to boost operational efficiency, revenue growth, and earnings.
  
• Focus on recurring revenues and AI-driven efficiencies promises improved cash flow, revenue predictability, and stronger net margins.
  
• Restructuring efforts and reliance on cost optimization present risks to future earnings stability, while AI integration poses potential challenges to achieving anticipated cost efficiencies.

Catalysts

Provides software solutions for healthcare sector in Norway, Sweden, Denmark, Finland, and internationally.

• The restructuring completion in 2024 positions Omda to operate efficiently, allowing them to project specific growth in guidance numbers for 2025 and 2026. This improved operational structure is expected to enhance EBITDA margins and earnings.
  
• Omda's acquisition strategy is revitalized, with new acquisitions actively contributing to revenue growth. This forward-looking acquisition focus augments the organic growth and is likely to positively impact revenue and earnings.
  
• The company's increased focus on enhancing recurring revenues, which form a substantial part of the income, provides a stable revenue foundation and is projected to continue growing. This revenue predictability is likely to positively influence net margins and earnings.
  
• With a successful reduction in net working capital to a record low, Omda improves its cash flow position, enhancing liquidity, and setting the stage for better net margins and financial flexibility.
  
• Leveraging AI in administrative tasks, code development, and product enhancements promises potential cost efficiencies and revenue growth, foreseen to boost net margins and earnings.

Omda Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Omda's revenue will grow by 7.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from -15.7% today to 3.4% in 3 years time.
• Analysts expect earnings to reach NOK 17.8 million (and earnings per share of NOK 0.85) by about May 2028, up from NOK -66.7 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 59.7x on those 2028 earnings, up from -12.7x today. This future PE is greater than the current PE for the NO Healthcare Services industry at 13.8x.
• Analysts expect the number of shares outstanding to decline by 1.33% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.34%, as per the Simply Wall St company report.

Omda Future Earnings Per Share Growth

Risks

• The recent restructuring, while casting a positive outlook, has resulted in a significant drop in EBITDA margin from 19% to 14%, which could impact net margins adversely if similar issues arise in the future.
  
• While recurring revenues are growing, reliance on large projects can create volatility in revenue, as seen with the underperformance in the Emergency segment, potentially impacting earnings consistency.
  
• Despite targeting significant EBITDA improvements, the company faces risk in execution due to restructuring and reliance on cost optimization, putting future earnings at risk if efficiencies aren't realized.
  
• With substantial headcount reduction planned, there could be disruptions or unmet operational needs if not managed well, impacting operational efficiency and potentially affecting revenue.
  
• The ongoing use of AI for administrative and coding efficiency contains execution risks; if not integrated effectively, it might fail to deliver the anticipated cost reductions, affecting net margins.

Valuation

• The analysts have a consensus price target of NOK44.0 for Omda 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 NOK53.0, and the most bearish reporting a price target of just NOK35.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be NOK531.6 million, earnings will come to NOK17.8 million, and it would be trading on a PE ratio of 59.7x, assuming you use a discount rate of 8.3%.
  
• Given the current share price of NOK41.4, the analyst price target of NOK44.0 is 5.9% 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.