Decentralized Diagnostics And Recurring Consumables Revenue Will Drive Stronger Margins Ahead

Catalysts

About Boule Diagnostics

Boule Diagnostics develops and supplies hematology instruments and consumables for decentralized human and veterinary diagnostics, as well as OEM reagents and blood controls for global IVD companies.

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

• Resumption of government tenders and improving demand in key regions, combined with Boule's broad distribution in more than 100 countries, should convert the growing installed base into higher consumables pull through. This may support sustained revenue growth and more stable cash generation.
• Structural shift toward decentralized testing in both human and veterinary care, where Boule has a strong position in 3-part hematology and is expanding into 5-part and clinical chemistry, is likely to lift volumes and improve operating leverage. This may support earnings expansion.
• High recurring share of revenue at roughly 60 percent from locked-in reagents on over 30,000 instruments, together with incremental price increases to offset FX headwinds, should gradually restore gross margins and support higher net margins over the medium term.
• OEM strategy focused on expanding the reagent project funnel and launching a differentiated generic blood control portfolio from 2027 positions Boule to capture long duration contracts with attractive profitability. This underpins medium to long term revenue visibility and earnings quality.
• Technology partner model that adds new clinical chemistry and veterinary instruments without heavy internal R&D spend, alongside a 30 percent reduction in operating costs, should support margin expansion and stronger free cash flow as new products launch in 2026 and beyond.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Boule Diagnostics's revenue will grow by 4.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from -15.8% today to 15.2% in 3 years time.
• Analysts expect earnings to reach SEK 87.3 million (and earnings per share of SEK 2.25) by about December 2028, up from SEK -81.0 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 4.2x on those 2028 earnings, up from -2.5x today. This future PE is lower than the current PE for the GB Medical Equipment industry at 42.2x.
• 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 7.82%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Persistent currency headwinds from a weaker U.S. dollar against the Swedish krona, combined with a revenue base where roughly three quarters is denominated in U.S. dollars, could structurally depress gross margins and limit operating leverage even if organic sales keep growing. This would weigh on earnings and net margins over time.
• The razor blade model depends on converting a growing installed base into higher consumables usage. However, delayed customer payments, distributor inventory overhang and slower than expected normalization in reagent demand could cap recurring revenue growth and undermine the assumed improvement in cash generation and revenue stability.
• The strategic shift toward technology partner sourced instruments and the closure of internal development projects reduce R&D spend, but also increase reliance on third party innovation and execution. Delays or underperformance in new clinical chemistry and veterinary launches planned for 2026 and 2027 could weaken Boule's competitive position and limit future revenue and margin expansion.
• While the decentralized hematology and OEM reagent markets are structurally attractive, intensifying competition in 5 part human hematology and in generic blood controls, combined with downward pressure on instrument pricing, could force Boule to sacrifice price to defend share. This would put sustained pressure on gross margin and ultimately on operating profit and earnings growth.

Valuation

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

• The analysts have a consensus price target of SEK7.5 for Boule Diagnostics 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 SEK575.8 million, earnings will come to SEK87.3 million, and it would be trading on a PE ratio of 4.2x, assuming you use a discount rate of 7.8%.
  
• Given the current share price of SEK5.22, the analyst price target of SEK7.5 is 30.4% 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.