Expanding In APAC And Focusing On US Market Will Strengthen Future Market Position

Key Takeaways

• Strategic expansion in APAC and focus on the U.S. market could drive substantial revenue growth and strengthen market position.
  
• Increased emphasis on service contracts and R&D investments may enhance future earnings stability, sales growth, and market share.
  
• Regional challenges and macroeconomic factors are impacting revenue growth and project pipelines, with potential volatility and unpredictability in future revenue streams.

Catalysts

Develops, manufactures, and sells products and systems with applications in radiotherapy for the treatment of cancer in Europe, the Middle East, Africa, the America, and the Asia Pacific.

• C-RAD's strategic expansion in the APAC region, evidenced by the 112% revenue growth in Q4, indicates potential for sustained revenue growth as they continue to build their market presence in this high-growth area.
  
• The focus on the U.S. market, especially with the retrofit wins on Varian linacs, could significantly enhance their position and increase revenue given the size and importance of the American health market.
  
• There is an emphasis on increasing service contracts, particularly noticeable in EMEA, with multiple long-term deals recently secured. This recurring revenue stream could positively impact future net margins and earnings stability.
  
• Ongoing investment in R&D through increased FTEs is likely targeted at product innovation, potentially leading to new offerings or improvements that could drive higher sales and capture more market share, thus boosting future revenues.
  
• The company is focusing on building long-term customer partnerships and increasing reference clinics, which could enhance customer satisfaction and sales through word-of-mouth endorsements, supporting revenue growth and potentially improving net margins through more efficient customer acquisition.

C-Rad Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming C-Rad's revenue will grow by 13.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 12.0% today to 18.1% in 3 years time.
• Analysts expect earnings to reach SEK 123.5 million (and earnings per share of SEK 3.67) by about March 2028, up from SEK 56.5 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 15.0x on those 2028 earnings, down from 19.2x today. This future PE is lower than the current PE for the GB Medical Equipment industry at 28.7x.
• Analysts expect the number of shares outstanding to decline by 0.3% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.33%, as per the Simply Wall St company report.

C-Rad Future Earnings Per Share Growth

Risks

• The revenue decline of 12% in Q4, particularly in the EMEA and Americas regions, highlights regional challenges impacting overall revenues and growth prospects.
  
• Order intake was down by 7% for the year, indicating potential difficulties in maintaining a steady pipeline of future revenue-generating projects.
  
• Revenue in the Americas was below expectations due to slower backlog conversion and installation delays, posing risks to short-term revenue realization.
  
• Cancellation of orders amounting to SEK 15 million reflects potential volatility and unpredictability that could impact future revenue streams.
  
• The slower market in Germany and broader macroeconomic challenges in EMEA pose risks of continued revenue stagnation or decline in key markets.

Valuation

• The analysts have a consensus price target of SEK48.0 for C-Rad 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 SEK683.9 million, earnings will come to SEK123.5 million, and it would be trading on a PE ratio of 15.0x, assuming you use a discount rate of 5.3%.
• Given the current share price of SEK32.25, the analyst price target of SEK48.0 is 32.8% 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.