Key Takeaways
- Dedicare holds a robust market position within a steadily expanding market.
- Continued revenue growth is supported by the persistent need for skilled health professionals.
- However, heightened competition and regulatory hurdles are adversely affecting both revenues and profit margins.
Catalysts
- The company operates within a market characterized by a growing demand for healthcare and social care services, driven by demographic shifts and a persistent shortage of qualified personnel. This market dynamic suggests a stable and expanding customer base for Dedicare's services.
- Dedicare's market position is robust; as a leading recruitment and staffing provider in the Nordics, it has established a reputation for quality and reliability. This is further bolstered by their investments in IT and digitalization, which aim to enhance operational efficiency and scale.
- Dedicare's financial performance indicates a trend of strong growth, with significant organic growth and strategic acquisitions contributing to its expansion, not just in the Nordics but also establishing a presence in the UK.
- Dedicare's main market in the Nordics has been experiencing difficulties lately due to heightened competition, regulatory constraints such as contractual limitations, and increased salaries, partly as a result of the aforementioned competition. This is reflected in the company's latest performance for Q1 2024, with a 14.5% decrease in net sales compared to the previous quarter.
Assumptions
- Assumed revenue growth of 5% for 2024-2027, before a reacceleration to 7%, in-line with the company's long-term goals.
- A reduction in net margins as a consequence of increased competition & regulatory challenges, falling from 7.01% in 2024, to 6.61% by 2034.
- Expected earnings to reach SEK 179.6 million by 2034.
- Free Cash Flow as % of Sales between 2.50-6.29%.
- Discount rate of 7.69%.
Risks
- Regulatory risks:
- Healthcare in the Nordics and the UK is heavily regulated and publicly funded, posing risks to Dedicare's operations. Political decisions and increasing competition may also impact its growth and success.
- Operational risks:
- Customer Dependency: Dedicare relies on a small number of customers for a large portion of its revenue. Losing tenders or falling in the priority ranking could negatively impact sales and profitability.
- Skills Shortages in Consulting Operations: Dedicare faces the risk of resource shortages that may limit its growth potential. Attracting and retaining a diverse pool of candidates is crucial for the company's success.
- Financial Risks:
- Dedicare faces currency risks due to exposure to NOK, DKK, and GBP, but these risks are not currently hedged.
Valuation
- Base case of estimated value per share of SEK 61.70.
- Base case of equity value per share of SEK 82.20.
- Margin of Safety (25%) of SEK 20.6.
- Given the current share price of NOK 58.70, the share is currently 4.9% undervalued.
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Disclaimer
The user Bonywall holds no position in OM:DEDI. Simply Wall St has no position in any of the companies mentioned. The author of this narrative is not affiliated with, nor authorised by Simply Wall St as a sub-authorised representative. This narrative is general in nature and explores scenarios and estimates created by the author. The narrative does not reflect the opinions of Simply Wall St, and the views expressed are the opinion of the author alone, acting on their own behalf. These scenarios are not indicative of the company's future performance and are exploratory in the ideas they cover. The fair value estimates are estimations only, and does not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that the author's analysis may not factor in the latest price-sensitive company announcements or qualitative material.