European B2C Expansion And New Contracts Will Deliver Future Results

Key Takeaways

• Growth in B2C markets in the U.K. and Netherlands, along with strategic R&D investments, are positioned to boost revenue and profitability.
  
• New contracts in Norway and France's fixed alarms signify potential market penetration and expansion, enhancing revenue and net margins.
  
• Increased operating expenses and declining margins, amid currency-adjusted sales decline and market slowdowns, could pressure Careium's future profitability and revenue stability.

Catalysts

Provides technology-enabled care services in Sweden, Norway, the United Kingdom, the Netherlands, Germany, France, and Spain.

• Careium is witnessing growth across various markets except for Sweden, where sales are currently suppressed due to market dynamics and pending new tender frameworks. Once these frameworks are settled, particularly the Swedish ADDA framework, there is potential for a significant increase in Swedish sales, boosting overall revenue.
  
• The company's pushes into B2C markets, especially in the U.K. and Netherlands, are expected to drive higher revenue growth and potentially improve net margins due to the higher profitability of direct-to-consumer sales compared to traditional channels.
  
• The recognition of a substantial new contract in Norway and the first significant order of fixed alarms in France highlights Careium's potential to penetrate and expand in new segments, which could enhance revenue and boost net margin as these markets mature.
  
• The i-Care Center platform is seeing strong pipeline developments, which, when materialized into sales, could offer high-margin revenue streams, positively impacting overall earnings.
  
• Strategic investments in R&D are set to strengthen Careium's technology portfolio, potentially leading to superior products and services that can capture market share, thereby increasing revenue and improving profitability through differentiation and cost efficiencies.

Careium Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Careium's revenue will grow by 9.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 6.0% today to 7.2% in 3 years time.
• Analysts expect earnings to reach SEK 82.9 million (and earnings per share of SEK 3.08) by about May 2028, up from SEK 52.0 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 10.6x on those 2028 earnings, down from 13.0x today. This future PE is lower than the current PE for the SE Medical Equipment industry at 30.9x.
• 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 6.14%, as per the Simply Wall St company report.

Careium Future Earnings Per Share Growth

Risks

• Careium experienced a decline in organic sales by 1.6% (2.3% when adjusted for currency) in Q1 2025, with significant decreases in their Swedish market, which might negatively impact revenue and earnings.
  
• The company's product sales fell by 15.5%, attributed to strong previous quarter sales in the UK and Germany, signaling potential fluctuations in revenue consistency.
  
• Operational cash flow decreased from SEK 29 million (Q1 2024) to SEK 19 million, and free cash flow dropped to SEK -4 million, highlighting potential liquidity and cash management challenges.
  
• The Swedish market faces a significant slowdown due to paused new tender frameworks, leading to challenging comparisons against previous contracts, which can impact revenue stability and net margins.
  
• Careium’s increased operating expenses relative to sales, driven by R&D and sales investments, alongside declining EBITDA margin, could pressure net margins and raise concerns about future profitability.

Valuation

• The analysts have a consensus price target of SEK30.5 for Careium 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 SEK1.2 billion, earnings will come to SEK82.9 million, and it would be trading on a PE ratio of 10.6x, assuming you use a discount rate of 6.1%.
  
• Given the current share price of SEK27.7, the analyst price target of SEK30.5 is 9.2% 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.