Cloud Healthcare Shift Will Drive Strong Market Share And Durable Earnings Power

Catalysts

About Carasent

Carasent is a fast growing SaaS provider of cloud based healthcare and EHR solutions across the Nordics and Germany.

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

• The commercial rollout of Webdoc X into a largely outdated German EHR landscape, where most providers still run 1990s era systems, positions Carasent to capture significant share as clinics transition to cloud. This is driving sustained ARR growth and higher recurring revenue visibility.
• Deepening penetration in Nordic private and regional primary care, including large reference implementations like Volvat and growing traction in Stockholm, should reinforce word of mouth driven adoption and upsell within existing customer groups. This is supporting net revenue retention above 110 percent and accelerating top line growth.
• Expansion of the product suite with high value modules such as surgery for Webdoc, Advoca for patient interaction and HPI’s occupational health platform increases ARPU per clinic and strengthens switching costs. This supports long term revenue expansion and structurally higher EBITDA margins.
• Scaling of AI enabled tools like Medsum for ambient clinical documentation, combined with broader AI efficiency gains in development, can improve clinician productivity and allow faster feature delivery. This underpins premium pricing power, reduced churn and margin expansion.
• Industry wide shifts toward secure, interoperable digital infrastructure and stricter regulatory requirements, exemplified by NLL in Sweden and recurring German security upgrades, create mandatory upgrade cycles. Carasent’s cloud architecture and bundled compliance work lower customer burden, supporting recurring transaction and subscription revenues and stabilizing earnings.

Assumptions

This narrative explores a more optimistic perspective on Carasent compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts. How have these above catalysts been quantified?

• The bullish analysts are assuming Carasent's revenue will grow by 16.3% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -5.7% today to 23.2% in 3 years time.
• The bullish analysts expect earnings to reach SEK 119.9 million (and earnings per share of SEK 1.66) by about December 2028, up from SEK -18.6 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as SEK103.1 million.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 24.7x on those 2028 earnings, up from -101.6x today. This future PE is lower than the current PE for the GB Healthcare Services industry at 62.7x.
• The bullish analysts expect the number of shares outstanding to decline by 3.3% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.25%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The healthcare IT market remains structurally slow moving, with multi year sales cycles, cautious clinicians and long implementation phases. This could delay the monetisation of Webdoc X, the surgery module and Medsum and hold back revenue growth and ARR expansion.
• Carasent is increasing capitalised development and sales investment in Germany before having proof of rapid adoption. If German clinics are slower than expected to migrate from 1990s era systems, the company could face a prolonged period of elevated development and go to market costs relative to modest local uptake, pressuring EBITDA margins and future earnings.
• The strategy to prioritise recurring subscription revenues over higher margin consulting and to offer large rebates on implementation may structurally reduce near term services income. If the expected step up in ARR per customer does not materialise, overall revenue growth and operating leverage could undershoot expectations and constrain margin expansion.
• Dependence on a few large, complex projects such as Volvat and the biennial German security upgrade introduces timing and execution risk. Project delays, scope changes or pricing pressure could create lumpy consulting income, weaker working capital and short term volatility in revenue and EBIT.

Valuation

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

• The assumed bullish price target for Carasent is SEK39.0, which represents up to two standard deviations above the consensus price target of SEK32.09. This valuation is based on what can be assumed as the expectations of Carasent's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of SEK39.0, and the most bearish reporting a price target of just SEK25.27.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2028, revenues will be SEK517.7 million, earnings will come to SEK119.9 million, and it would be trading on a PE ratio of 24.7x, assuming you use a discount rate of 6.3%.
  
• Given the current share price of SEK27.05, the analyst price target of SEK39.0 is 30.6% 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.