Demographic Shift With 30% Elderly Population Increase Will Boost Elderly Care Demand

Key Takeaways

• Integration with Team Olivia and easing Finnish regulations are projected to enhance operational efficiency and profitability in key markets.
  
• Demographic trends and active capital strategies are expected to boost growth, demand, and shareholder value for Attendo.
  
• Challenges in operational efficiency and profit margins arise from integration efforts and staffing changes, with revenue growth impacted by contract endings and occupancy rates.

Catalysts

Provides health and care services in Scandinavia and Finland.

• The integration of Team Olivia is expected to provide Attendo with increased operational efficiency and improved margins in Scandinavia in 2025. This will likely have a positive impact on earnings as the company realizes the full potential of the acquisition.
  
• The easing of staffing regulations in Finland is expected to improve operational efficiency, leading to a potentially higher demand for placements and contributing positively to margins and profitability in the Finnish market.
  
• An anticipated demographic shift with a 30% increase in the elderly population over the next 5 years supports strong growth prospects in elderly care, potentially increasing revenue through heightened demand in Attendo’s markets.
  
• Continued focus on operational efficiency and satisfaction improvements across care units aims to enhance customer and employee satisfaction, which could drive higher occupancy rates and positively influence revenue and net margins.
  
• The company's active capital allocation strategy, including share buybacks and dividends, is expected to enhance shareholder value, contributing to improved earnings per share as Attendo strategically leverages its strong cash flow.

Attendo Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Attendo's revenue will grow by 4.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.2% today to 3.1% in 3 years time.
• Analysts expect earnings to reach SEK 653.4 million (and earnings per share of SEK 4.5) by about February 2028, up from SEK 400.0 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as SEK531 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 15.3x on those 2028 earnings, down from 22.9x today. This future PE is lower than the current PE for the GB Healthcare industry at 18.5x.
• Analysts expect the number of shares outstanding to decline by 3.42% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.58%, as per the Simply Wall St company report.

Attendo Future Earnings Per Share Growth

Risks

• Integration of Team Olivia took more focus and effort than anticipated, diverting resources and possibly impacting operational efficiency and profit margins temporarily.
  
• Occupancy rates were slightly down due to seasonal effects and net outflow of customers in Finland, which could affect revenue growth if not improved in the future.
  
• Ended outsourcing contracts impacted revenue negatively, especially in Scandinavia, where they accounted for a SEK 15 million negative impact, suggesting potential risks to net margins if not replaced with new contracts.
  
• Changes in staffing requirements in Finland could affect operational efficiency, posing a risk to maintaining or improving current net margins due to potential challenges in adapting to new regulations swiftly.
  
• The cash flow situation might be under pressure due to expected increases in paid taxes, affecting net profit margins despite growth in revenues and earnings.

Valuation

• The analysts have a consensus price target of SEK60.333 for Attendo 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 SEK20.9 billion, earnings will come to SEK653.4 million, and it would be trading on a PE ratio of 15.3x, assuming you use a discount rate of 6.6%.
  
• Given the current share price of SEK60.0, the analyst price target of SEK60.33 is 0.6% 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.