doro - redeye · 10/27/2019 · the ebit margin came in at 6.5% compared to the company long-term...
TRANSCRIPT
Important information: All information regarding limitation of liability and potential conflicts of interest can be found at the end of the report Redeye, Mäster Samuelsgatan 42, 10tr, Box 7141, 103 87 Stockholm. Tel. +46 8-545 013 30, E-post: [email protected]
Update
Equity Research 27 October 2019
KEY STATS
Ticker DORO.ST Market Small Cap
Share Price (SEK) 39.1 Market Cap (MSEK) 946 Net Debt 19E (MSEK) 207 Free Float 88 %
Avg. daily volume (‘000) 4
BEAR BASE BULL 38.0
61.0
84.0
KEY FINANCIALS (SEKm)
2017 2018 2019E 2020E 2021E 2022E Net sales 1924 1906 2023 2014 2048 2135 EBITDA 156 194 210 247 274 298 EBIT 92 122 119 135 160 180 EPS (adj.)
2017 2018 2019E 2020E 2021E 2022E EPS (adj.) 2.8 3.8 3.5 3.9 4.5 5.1 EV/Sales 0.6 0.5 0.6 0.6 0.5 0.4 EV/EBITDA 7.3 5.4 5.5 4.5 3.6 2.9 EV/EBIT 12.3 8.5 9.7 8.3 6.1 4.8 P/E 15.5 9.0 11.3 10.0 8.7 7.6
ANALYSTS
Viktor Westman [email protected] Fredrik Nilsson [email protected]
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OMXS 30 Doro
Solid phone Q3 – but we only care for Care Better Q3 sales - weaker gross margins
EBIT came in at SEK 34m as expected. However, as most other quarters, it was a matter of
swings and roundabouts. Sales of SEK 521m came in 4% above expectations. The order
book continued to look solid, amounting to SEK 518m (+26% y/y), indicating a good Q4’19.
The gross margin reached 31.1% (expected 32.5%) due to a logistics effect and the
USD/EUR movement, although from the conference call we conclude gross margins should
improve ahead. Given the margin headwinds and UK certification issues we think Doro did
a good job in Phones, delivering a 6.5% group EBIT margin (expected 6.9%). However, we
only care for Care (Services).
Services: Strong sales growth – but Doro lost 4 000 connections
Services followed the same trends as before, growing 6% organically q/q to SEK 96m
(expected 94m). Doro highlighted new contracts won in Sweden, but it forgot to mention
that it lost about 4 000 subscriptions from Q2’19. Since UK and Norway were strong the
problem is likely still related to Sweden. We are more optimistic regarding UK telecare (see
further below) and have increased our associated estimates, although they are fully offset
by the weakness in Sweden.
Cash flow machine trading at a pessimistic one-digit R12M OE multiple
The operating cash flow of SEK 73m (up 28% y/y) is the most impressive part of the Q3
report. It means that Doro self-financed the Centra acquisition within the quarter. If we
assume a 75% maintenance CAPEX ratio, Doro’s enterprise value trades at an Owner
Earnings multiple of ~9x on its trailing 12-months cash flow. We would argue that this is
too pessimistic given especially the telecare outlook in UK where Doro is the market leader.
Shares in line with our bear case – EV/EBIT 6x for 2021E suggests eventual revaluation
With our estimates virtually unchanged we keep our valuation with a base case of SEK 61
per share. Shares continue to trade in line with our bear case of SEK 38. It is tricky to see
what will drive the stock, besides care M&A, but if our current estimates play out (EV/EBIT
6x for 2021E) we think Doro is in for an eventual revaluation.
Doro
REDEYE RATING
VERSUS OMXS30
FAIR VALUE RANGE
Finan
ce
Peop
le
Busin
ess
REDEYE Equity Research Doro 27 October 2019
2
Solid Q3 for Phones – but we only care for Care The Q3 order intake of SEK 589m equals a 2% growth and is in line with the past two years.
The rolling 12-month trend is stable, as indicated in the graph below.
Q3: Weaker gross margins – but improvement ahead
Q3 sales grew 2.5% from Q3’18 or 0.3% adjusted for currency. As mentioned above, sales
were SEK 521m while we expected SEK 502m (see the table below). The deviation was
related to all regions outside UK delivering slightly better than our estimates. Doro says it has
been working hard to solve UK and it is now back on the shelfs, although the company
highlighted a challenging Q4 in UK.
The EBIT margin came in at 6.5% compared to the company long-term target of 8% and our
estimate of 6.9%, which was related to a soft gross margin of 31.1% (expected 32.5%). It
sounds like the logistics effect (shipping via air as opposed to boat due to a surprisingly high
Order Intake & Sales R12M (SEK million)
Source: Doro & Redeye Research
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Q112 Q312 Q113 Q313 Q114 Q314 Q115 Q315 Q116 Q316 Q117 Q317 Q118 Q318 Q119 Q3'19
Sales R12M Order intake R12M
Doro - Expected vs. Outcome
SEKm Q3'18 Q3'19E Outcome Diff
Net sales 509 502 521 4%
whereof Services 82 94 96 2%
EBIT 33 34 34 -1
EBITDA 54 56 57 1
PTP 33 33 32 -1
EPS, SEK 1.09 1.04 0.95 -0.09
Salesgrowth 9.3% -1.3% 2.5%
Grossmargin 31.5% 32.5% 31.1%
EBIT margin 6.5% 6.9% 6.5%
EPS growth (y/y) 53% 95% -13%
Source: Doro, Redeye Research
REDEYE Equity Research Doro 27 October 2019
3
demand) explains 20-40% of the deviation. The other part is related to a weaker gross margin
in Services (42% vs. expected 47%). Restoring the gross margin in Services is an important
priority for Doro and on the call the company mentioned an improvement in Q4, albeit not a
full recovery. Following the Q3 outcome, we see no reason to lower our gross margin
assumptions as we had already taken the EUR/USD movement and a weaker Q4 into
account.
The operating cash flow after working capital effects (SEK +23m) amounted to a strong SEK
73m (up 28% y/y), despite Q3 usually being a seasonally challenging quarter (working capital
build-up for Q4). Doro continues to deliver operating cash flows of around SEK 180-200m on
a rolling 12-month basis. This means that Doro trades at an enterprise value of 5-6x its
operating cash flows. Subtracting Doro’s internal investments (excl. acquisitions) the multiple
is about 11x. Thus, assuming a 75% maintenance CAPEX ratio, Doro trades at an Owner
Earnings multiple of 9x on its trailing 12 months cash flow.
Doro Sales & EBIT margin R12M
Source: Doro, Redeye Research
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Q211 Q411 Q212 Q412 Q213 Q413 Q214 Q414 Q215 Q415 Q216 Q416 Q217 Q417 Q218 Q418 Q2'19
Sales EBIT-margin
Operating cash flow R12M (SEK million)
Source: Doro, Redeye Research
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Q3'14 Q4'14 Q115 Q215 Q3'15 Q4'15 Q1'16 Q2'16 Q3'16 Q4'16 Q117 Q217 Q317 Q417 Q118 Q218 Q318 Q418 Q119 Q2'19 Q3'19
Operating Cash flow (after working capita l) Operating cash flow (before working capi tal )
REDEYE Equity Research Doro 27 October 2019
4
During the past years, every little setback for Doro resulted in a severe blow for margins or
growth. Nowadays, we get the feeling that Doro better can absorb adversities, such as with
the CEO severance package in Q2’19. In other words, Doro does not need to fire on all
cylinders to deliver decent quarters. This tells us that Doro has a better, more stable
underlying business. During Q3’19, Doro e.g. tackled the UK certification issues and weaker
gross margins from e.g. logistics costs and the USD/EUR movement, still being able to report
a 6.5% EBIT margin. Moreover, Doro says, excluding UK, it increased its market shares in
most markets during Q3.
Besides the new 8080 smartphone model for active seniors, Doro launched four new feature
phones during the quarter. Doro is pleased with the listings and sell-in related to the 8080. We
do not so far have any strong opinions on the prospects of the 8080.
Services: UK is promising – Sweden remains problematic Services grew organically 6% q/q to SEK 96m (expected 94m), meaning Services accounted
for 18% of total sales. As the organic y/y growth came in at 11% Centra Pulse and Connect
(“Centra”) contributed SEK 5m versus our expectations of 6m. For more on the rationale of
acquiring Centra etc., read our last update after the Centra acquisition.
The total number of subscriptions, following adding the 106 000 from Centra, amounted to
304 000. Doro highlighted new contracts won in Sweden, but it forgot to mention that it lost
about 4 000 subscriptions from Q2’19 (see the graph below). Since UK and Norway were
strong the problem is likely still related to Sweden.
There is reason to be slightly more optimistic going forward due to the new Country Director
for Sweden, Carl Johan Fredin, that joined in August. Fredin is supposed to be very
commercially focused, coming from a long sales background (20+ years) in healthcare
(Janssen, Aleris & Mundipharma etc.).
N.o. Doro alarm subscriptions per region*
Source: Doro & Redeye Research
* = The graph extrapolates data between some quarters as we do not have complete data for all quarters
0
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Sweden Norway (Trygghetssentralen) & UK (Welbeing) Centra
REDEYE Equity Research Doro 27 October 2019
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Doro said it has kept the gross margins stable in Sweden in both existing and new contracts,
which is reassuring as there generally speaking is a risk for price wars from long periods of
dropping subscriptions.
Norway accounted for a major part of the growth in Services. However, Trygghetssentralen
had negative earnings during 2018, which is related to growth investments leading to initially
lower margins on new contracts, but mostly it is an accounting effect (payment of old
pension liabilities).
With the growth phase over in Sweden, the future is all about UK. There were few tenders
during the quarter as the market has not taken off yet, but there is a strong interest from
potential customers. The telecom migration from analogue to digital is led by BT and Virgin
who together hold a majority of the market. As mentioned before, the deadline for becoming
fully digital has been set by BT to year 2025 with Virgin joining in. We expect the shift to
accelerate from September 2023 when BT will start its forced migration (no new PSTN lines).
Talk Talk, the fourth largest player, does not have an official deadline, but it has a fiber-to-the-
home project of 3 million households, which represents the vast majority of all its lines.
Several of the ~10 players that have announced aggressive fiber roll-out projects are private
equity backed.
Welbeing has previously taken over operations from smaller players and municipalities who
have been struggling with unprofitability due to only having a couple of thousand
connections, i.e. telecare is not their core business. One example, we believe, is Liverpool
Mutual Homes, where Welbeing in November 2018 took over a contract that had already
started, related to 1 200 residents. We believe there will be more similar opportunities related
to the 200 alarm centrals as the digital evolution and its associated large investments
approaches. In conclusion, the care M&A multiples overall could be very attractive as we
believe the alternative for many sellers is shutting down completely.
REDEYE Equity Research Doro 27 October 2019
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Forecast adjustments As mentioned above, we were already expecting a weaker Q4 gross margin and the Q3 OPEX
came in as expected. We therefore do not see any need to revise our earnings estimates and
only make negligible estimate changes (see the table below).
We see a greater potential in UK from telecare, but this is fully offset by the loss of
subscriptions in Sweden.
Looking at Q4, we are conservative and expect the group gross margin to remain at a soft
31%, but we still believe Doro’s earnings will remain at last year’s levels of SEK 38m, due to a
4% sales growth on the back of the strong order book.
Forecast adjustments
(SEKm) 2019E 2020E 2021E
Net sales Old 2000 2006 2048
New 2023 2014 2048
% change 1% 0% 0%
EBITDA Old 208 247 274
New 210 247 274
% change 1% 0% 0%
EBIT Old 120 134 160
New 119 135 160
% change -1% 0% 0%
Profit before tax Old 115 126 151
New 113 126 152
% change -2% 1% 0%
Earnings per share Old 3.61 3.89 4.51
New 3.47 3.91 4.51
% change -4% 1% 0%
Source: Redeye Research, Doro
Doro - Detailed estimates
SEKm 2017 Q1'18 Q2'18 Q3'18 Q4'18 2018 Q1'19 Q2'19 Q3'19 Q4'19 2019
Net sales 1924 420 424 509 554 1906 466 460 521 575 2023
whereof Services 193 53 64 82 86 285 86 86 96 108 377
EBITDA 156 39 44 54 57 194 44 47 57 62 210
EBIT 92 25 26 33 38 122 21 26 34 38 119
PTP 92 25 30 33 35 123 20 25 32 36 113
EPS, SEK 2.8 0.8 0.9 1.1 1.1 3.8 0.6 0.8 1.0 1.1 3.5
Sales growth -1.8% -7.2% -4.9% 9.3% -1.1% -0.9% 11.1% 8.3% 2.5% 3.9% 6.1%
EBIT margin 4.8% 5.9% 6.2% 6.5% 6.9% 6.4% 4.5% 5.7% 6.5% 6.6% 5.9%
Earnings growth (y/y) 116.7% 40.0% 37.5% 53.0% 16.3% 33.8% -19.3% -11.4% -13.2% 5.3% -8.2%
Gross margin 30.3% 33.7% 36.6% 31.5% 32.6% 33.4% 31.1% 34.9% 31.1% 31.3% 32.0%
Source: Doro, Redeye Research
REDEYE Equity Research Doro 27 October 2019
7
Investment Case Growth in phones seems to be over
This is a telecare & mobile health play
Reported growth is required to move the shares
Growth in phones seems to be over
Doro has not been able to reach underlying top line growth during the past years. The current depressed market
valuation suggests that the perception is that Doro will never be able to grow again. This might be true for phones
but there are, according to us, promising growth opportunities in the service segment within telecare and mobile
health (see further below). This will eventually drive recurring revenue as well as higher margins and multiples. The
main problem is that the services (Care) part at the moment is way too small (about 20 % of the total) and will
remain so until Doro makes a few more acquisitions similar to Welbeing. Thus, M&A is key.
This is a telecare & mobile health play
In the summer of 2018, Doro's US competitor GreatCall was acquired by Best Buy for USD 800m (EV/S about 2.5x
or USD 800-900 per subscriber). We argue that Doro can, and will, pursue a similar care journey. Doro’s new Smart
Care box will function as a gateway to which all types of devices and sensors can be connected in order to detect
unusual behavior. Doro will pre-program the alarm button on the phone and offer various services for a monthly fee,
including making it possible for families, friends and caregivers etc. to monitor the user via an app and receive
alarms. Relatives or caregivers can receive notifications that everything is ok alternatively not ok and in a more
serious situation an alarm to an alarm centre can automatically go off and caregivers can be dispatched. Doro will
open up the platform for all kinds of third party solutions such as e.g. portable heart scanners or bed sensors that
can sense if a person is not in bed. The system can also detect unordinary events, e.g. if the refrigerator has not
been opened during the past 24 hours, if someone has been in the bathroom for an hour or perhaps in the bathroom
30 times in one day.
All this will create a moat, as copying Doro’s extensive offering will not only require hardware but also software and
services. The value proposition is obvious. Seniors can live home longer, free and independently. Relatives are sure
that their loved ones are safe as everything can be monitored remotely: the current location, missed calls and
battery life etc. Last, being able to determine that everything is ok from a distance is also very cost efficient for the
municipalities and the care providers. Doro has several unique and important assets that will help it succeed in its
quest:
1. Major confidence in the Doro brand from the target customers, as opposed to competing start-ups. 2. A deep understanding of the users and their needs. 3. Sales channels within about 50 countries and hardware logistics to handle 3+ million hardware units 4. A physical alarm button on every phone and an installed base of almost 130 000 telecare alarm
subscriptions as well as long-time experience from the whole alarm chain
Reported growth is required to move the shares
In relation to our reasonably pessimistic scenario of SEK 38 per share and our base case of SEK 61, today’s share
price provides a favourable risk/reward. However, a narrower price/value gap requires earnings reports which
clearly shows that Doro has come back to growth. The stock market’s trust in Doro is low at the moment, meaning
one good report alone may not be enough.
REDEYE Equity Research Doro 27 October 2019
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Valuation
Bear Case 38.0 SEK Base Case 61.0 SEK Bull Case 84.0 SEK In our pessimistic scenario we assume that the days of growth are over. The key difference in our bear case compared to our base case and the reason for our zero sales growth estimates is that we assume that the rapid growth in smartphone penetration across the globe will severely hurt the feature phones business. This will not necessarily be related to a lower demand from consumers. We see a threat that as Doro’s telecom operator customer and retail partners decrease their feature phones models in favour of smartphones they decide to go for a general feature phone as opposed to a senior dedicated feature phone. This results in a -5 % growth in the phones business that is compensated by the service growth of 8 % but, as mentioned, total group sales are flat. Even though gross margins could remain stable due to solid services sales, the decreasing sales means that the average EBIT margin and long-term EBIT margin will only be 7 and 4 percent respectively. Our bear case SOTP breakdown implies 3 % average EBIT margins in phones and 13 % within services.
Our base case is built around years 2018-2024. For this period we expect an average sales growth of 3 %, with Services (Care) growing sales at a CAGR of 12 % and subscriptions by 4 %. The traditional phones business is estimated to be flat related to the feature phones business whose volumes can grow and offset the ASP decline. The smartphones penetration of sales, however, continues to struggle and remains at about 20 percent. We do not expect Doro to come back to its historical margins. Instead we model group gross margins of on average 34 %, despite a growing proportion of service revenue (Care), which of course is related to plummeting phone sales. As ASP as well as gross margins are sinking in the mobile segment we do not expect group EBIT to be higher than on average 8 %. We assume a long-term EBIT margin of 6 percent – slightly below Doro’s historical margins. Our SOTP breakdown implies 4 % average EBIT margins in phones and 17 % within services.
In our bull case valuation of Doro we expect a better phones volume growth of CAGR 11 % (5 % in base case) and a lower ASP decline of -1 % related to smartphones finally taking off, primarily due to Doro Response. We expect the smartphone volume ratio to go from 7 % to 17 % in 2024, meaning about one third of the total coming from smartphone sales in 2022. We forecast a total services sales CAGR of 12 % driven by SmartCare and strong organic growth in UK from the shift to digital alams. On the margin side we expect the gross margins to gradually improve slightly to 35 % in 2024, meaning we believe Doro will reach its 8 percent EBIT target in 2021 and then a long-term EBIT margin of 9 percent. We believe the average EBIT margin during 2018-2024 will be 8 %. Our bear case SOTP breakdown implies 5 % average EBIT margins in phones and 17 % within services.
REDEYE Equity Research Doro 27 October 2019
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Catalysts New Care services
The new Care offerings, SmartCare and Doro Response, are important for the company's transformation and how
they grow in popularity following their launches is an important factor for the shares.
Return to growth
Following two years of zero growth for Doro we assume that the perception can only change when it is obvious for
the stock market that Doro is back to growth, which would likely be in an earnings report.
Foreign expansion of Doro Care
The Care acquisitions are Doro's chance to build more sticky revenue and endurable competitive advantages.
Doro's foreign care expansion will lead to margin and multiple expansion. In UK, Doro now has important M&A
expertise from its Welbeing acquisition.
REDEYE Equity Research Doro 27 October 2019
10
Summary Redeye Rating The rating consists of three valuation keys, each constituting an overall assessment of several factors that are rated
on a scale of 0 to 1 points. The maximum score for a valuation key is 5 points.
People: 3
The new CEO and practically the whole management team is brand new, creating some uncertainty, although partly offset by
experience in the Board. The former Management initiated the focus in Care and the associated acquisitions but as for execution,
the last years have been clouded by recurring profit warnings. Sales growth has been non-existent during the past years due to
various problems. Nevertheless, there is a history of growth and overcoming setbacks. Doro has often (instead of communication
to shareholders) let solid numbers speak for themselves, although we would prefer a bit more transparency ahead. Doro now has
a main owner with a corner as Accendo Capital owns 16 percent of the shares. Accendo is an active owner that has taken position
on Board and helped in recruiting important telecom experience to the Board. Rite Ventures also recently acquired a corner. The
ownership interest in the Board has improved but Management's share positions on the other hand are too small, which has been
the case for many years. We would especially prefer if the CEO had a larger stake.
Business: 3
The total phone market in general is not growing in value, although the senior segment is. Doro is the market leader in a small,
carved-out niche where the penetration ratio still only is 1-2 percent outside of the Nordics. Doro is also capturing market share in
the growth area Care where its focused efforts can provide good growth prospects within telecare and digital/mobile health over
the upcoming years. There is however a major obstacle in the smartphone transition to overcome, which we want to see if Doro
can cope with. If so, we could increase this parameter.
Financials: 3
Doro’s EBIT margins have started to recover but have contracted compared to 2012. The ROE and ROIC show similar trends
during the same period. Cash flows have been rather solid though. An increased proportion of Care should improve the margins.
We believe the same eventually goes for smartphones if Doro can reach economics of scale by selling larger volumes. The
financial situation is solid with a strong interest coverage ratio and a healthy debt/equity ratio, although there is still a substantial
net debt following the Care acquisitions. The cash flows are volatile, yet stable over time. Doro seems to do fine in managing the
Company's large investments with its own means.
REDEYE Equity Research Doro 27 October 2019
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PROFITABILITY 2017 2018 2019E 2020E 2021E ROE 12% 15% 12% 12% 13% ROCE 12% 14% 11% 12% 13% ROIC 10% 13% 10% 11% 12% EBITDA margin 8% 10% 10% 12% 13% EBIT margin 5% 6% 6% 7% 8% Net margin 3% 5% 4% 5% 6%
Please comment on the changes in Rating factors……
INCOME STATEMENT 2017 2018 2019E 2020E 2021E Net sales 1,924 1,906 2,023 2,014 2,048 Total operating costs -1,768 -1,712 -1,813 -1,766 -1,774 EBITDA 156 194 210 247 274 Depreciation -5 -12 -5 -11 -11 Amortization -59 -60 -86 -101 -103 Impairment charges 0 0 0 0 0 EBIT 92 122 119 135 160 Share in profits 0 0 0 0 0 Net financial items 0 1 -6 -8 -8 Exchange rate dif. 0 0 0 0 0 Pre-tax profit 92 123 113 126 152 Tax -25 -32 -29 -32 -38 Net earnings 66 92 84 95 114
BALANCE SHEET 2017 2018 2019E 2020E 2021E Assets Current assets Cash in banks 57 134 168 182 319 Receivables 421 399 405 423 440 Inventories 197 264 253 242 236 Other current assets 0 0 0 0 0 Current assets 675 797 825 846 995 Fixed assets Tangible assets 19 41 114 113 107 Associated comp. 0 0 0 0 0 Investments 0 0 0 0 0 Goodwill 375 490 525 525 525 Cap. exp. for dev. 13 27 27 27 27 O intangible rights 78 95 131 137 139 O non-current assets 8 8 6 6 6 Total fixed assets 493 661 804 808 804 Deferred tax assets 10 7 16 16 16 Total (assets) 1,177 1,464 1,645 1,670 1,815 Liabilities Current liabilities Short-term debt 62 70 37 17 17 Accounts payable 380 411 485 463 481 O current liabilities 0 0 0 0 0 Current liabilities 442 481 522 480 498 Long-term debt 100 282 338 338 338 O long-term liabilities 19 20 20 20 20 Convertibles 0 0 0 0 0 Total Liabilities 561 783 880 838 856 Deferred tax liab 0 0 0 0 0 Provisions 33 34 34 34 34 Shareholders' equity 584 647 731 798 924 Minority interest (BS) 0 0 0 0 0 Minority & equity 584 647 731 798 924 Total liab & SE 1,177 1,464 1,645 1,670 1,815
FREE CASH FLOW 2017 2018 2019E 2020E 2021E Net sales 1,924 1,906 2,023 2,014 2,048 Total operating costs -1,768 -1,712 -1,813 -1,766 -1,774 Depreciations total -64 -72 -91 -113 -114 EBIT 92 122 119 135 160 Taxes on EBIT -25 -31 -30 -34 -40 NOPLAT 67 91 89 101 120 Depreciation 64 72 91 113 114 Gross cash flow 131 163 180 214 234 Change in WC 45 -14 80 -29 7 Gross CAPEX -73 -240 -234 -117 -110 Free cash flow 103 -91 26 68 131 CAPITAL STRUCTURE 2017 2018 2019E 2020E 2021E Equity ratio 50% 44% 44% 48% 51% Debt/equity ratio 28% 54% 51% 44% 38% Net debt 105 218 207 173 36 Capital employed 689 865 938 971 960 Capital turnover rate 1.6 1.3 1.2 1.2 1.1 GROWTH 2017 2018 2019E 2020E 2021E Sales growth -2% -1% 6% 0% 2% EPS growth (adj) 117% 34% -8% 13% 15%
DATA PER SHARE 2017 2018 2019E 2020E 2021E EPS 2.82 3.78 3.47 3.91 4.51 EPS adj 2.82 3.78 3.47 3.91 4.51 Dividend 0.00 0.00 1.14 1.29 1.49 Net debt 4.47 9.01 8.53 7.15 1.42 Total shares 23.54 24.20 24.20 24.20 25.20 VALUATION 2017 2018 2019E 2020E 2021E EV 1,133.8 1,041.2 1,153.0 1,119.4 982.2 P/E 15.5 9.0 11.3 10.0 8.7 P/E diluted 15.5 9.0 11.3 10.0 8.7 P/Sales 0.5 0.4 0.5 0.5 0.5 EV/Sales 0.6 0.5 0.6 0.6 0.5 EV/EBITDA 7.3 5.4 5.5 4.5 3.6 EV/EBIT 12.3 8.5 9.7 8.3 6.1 P/BV 1.8 1.3 1.3 1.2 1.0
SHARE INFORMATION Reuters code DORO.ST List Small Cap Share price 39.1 Total shares, million 24.2 Market Cap, MSEK 946.4 MANAGEMENT & BOARD CEO Carl-Johan Zetterberg Boudrie CFO Ronnie Ekman IR n/a Chairman Lennart Jacobsen ANALYSTS Redeye AB Viktor Westman Mäster Samuelsgatan 42, 10tr [email protected] 111 57 Stockholm Fredrik Nilsson [email protected]
SHARE PERFORMANCE GROWTH/YEAR 16/18E 1 month 2.0 % Net sales 2.5 % 3 month 6.1 % Operating profit adj 13.7 % 12 month 2.8 % EPS, just 10.8 % Since start of the year 14.5 % Equity 11.9 %
SHAREHOLDER STRUCTURE % CAPITAL VOTES Accendo Capital 15.5 % 15.5 % Rite Ventures 10.3 % 10.3 % Nordea Fonder 9.2 % 9.2 % Lazard Frères Gestion 5.7 % 5.7 % Dimensional Fund Advisors 2.9 % 2.9 % Clearstream Banking S.A. W8imy 2.9 % 2.9 % Nordea Bank Ab(Publ) Nordea Bank Abp 2.7 % 2.7 % Avanza Pension 2.7 % 2.7 % Nordea Liv & Pension 2.6 % 2.6 % n/a 0.0 % 0.0 %
DCF VALUATION WACC (%) 10.4 % Assumptions 2017-2023 (%) Average sales growth 2.6 % EBIT margin 7.7 %
REDEYE Equity Research Doro 27 October 2019
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Redeye Rating and Background Definitions Company Quality
Company Quality is based on a set of quality checks across three categories; PEOPLE, BUSINESS, FINANCE. These
are the building blocks that enable a company to deliver sustained operational outperformance and attractive long-
term earnings growth.
Each category is grouped into multiple sub-categories assessed by five checks. These are based on widely
accepted and tested investment criteria and used by demonstrably successful investors and investment firms. Each
sub-category may also include a complementary check that provides additional information to assist with
investment decision-making.
If a check is successful, it is assigned a score of one point; the total successful checks are added to give a score for
each sub-category. The overall score for a category is the average of all sub-category scores, based on a scale that
ranges from 0 to 5 rounded up to the nearest whole number.
The overall score for each category is then used to generate the size of the bar in the Company Quality graphic.
People
At the end of the day, people drive profits. Not numbers. Understanding the motivations of people behind a business
is a significant part of understanding the long-term drive of the company. It all comes down to doing business with
people you trust, or at least avoiding dealing with people of questionable character.
The People rating is based on quantitative scores in seven categories: Passion, Execution, Capital Allocation,
Communication, Compensation, Ownership, and Board.
Business
If you don’t understand the competitive environment and don’t have a clear sense of how the business will engage
customers, create value and consistently deliver that value at a profit, you won’t succeed as an investor. Knowing
the business model inside out will provide you some level of certainty and reduce the risk when you buy a stock.
The Business rating is based on quantitative scores grouped into five sub-categories: Business Scalability, Market
Structure, Value Proposition, Economic Moat, and Operational Risks.
Financials
Investing is part art, part science. Financial ratios make up most of the science. Ratios are used to evaluate the
financial soundness of a business. Also, these ratios are key factors that will impact a company’s financial
performance and valuation. However, you only need a few to determine whether a company is financially strong or
weak.
The Financial rating is based on quantitative scores that are grouped into five separate categories: Earnings Power,
Profit Margin, Growth Rate, Financial Health, and Earnings Quality.
REDEYE Equity Research Doro 27 October 2019
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Redeye Equity Research team
Management Björn Fahlén
Håkan Östling
Technology Team Jonas Amnesten
Henrik Alveskog
Dennis Berggren
Havan Hanna
Kristoffer Lindström
Fredrik Nilsson
Tomas Otterbeck
Eddie Palmgren
Oskar Vilhelmsson
Viktor Westman
Linus Sigurdsson (Trainee)
Editorial Jim Andersson
Eddie Palmgren
Mark Sjöstedt
Johan Kårestedt (Trainee)
Life Science Team Anders Hedlund
Arvid Necander
Erik Nordström
Klas Palin
Jakob Svensson
Ludvig Svensson
Oskar Bergman
REDEYE Equity Research Doro 27 October 2019
14
Disclaimer Important information Redeye AB ("Redeye" or "the Company") is a specialist financial advisory boutique that focuses on small and mid-cap growth companies in the Nordic region. We focus on the technology and life science sectors. We provide services within Corporate Broking, Corporate Finance, equity research and investor relations. Our strengths are our award-winning research department, experienced advisers, a unique investor network, and the powerful distribution channel redeye.se. Redeye was founded in 1999 and since 2007 has been subject to the supervision of the Swedish Financial Supervisory Authority. Redeye is licensed to; receive and transmit orders in financial instruments, provide investment advice to clients regarding financial instruments, prepare and disseminate financial analyses/recommendations for trading in financial instruments, execute orders in financial instruments on behalf of clients, place financial instruments without position taking, provide corporate advice and services within mergers and acquisition, provide services in conjunction with the provision of guarantees regarding financial instruments and to operate as a Certified Advisory business (ancillary authorization). Limitation of liability This document was prepared for information purposes for general distribution and is not intended to be advisory. The information contained in this analysis is based on sources deemed reliable by Redeye. However, Redeye cannot guarantee the accuracy of the information. The forward-looking information in the analysis is based on subjective assessments about the future, which constitutes a factor of uncertainty. Redeye cannot guarantee that forecasts and forward-looking statements will materialize. Investors shall conduct all investment decisions independently. This analysis is intended to be one of a number of tools that can be used in making an investment decision. All investors are therefore encouraged to supplement this information with additional relevant data and to consult a financial advisor prior to an investment decision. Accordingly, Redeye accepts no liability for any loss or damage resulting from the use of this analysis. Potential conflict of interest Redeye’s research department is regulated by operational and administrative rules established to avoid conflicts of interest and to ensure the objectivity and independence of its analysts. The following applies:
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Redeye’s research coverage Redeye’s research analyses consist of case-based analyses, which imply that the frequency of the analytical reports may vary over time. Unless otherwise expressly stated in the report, the analysis is updated when considered necessary by the research department, for example in the event of significant changes in market conditions or events related to the issuer/the financial instrument. Recommendation structure Redeye does not issue any investment recommendations for fundamental analysis. However, Redeye has developed a proprietary analysis and rating model, Redeye Rating, in which each company is analyzed and evaluated. This analysis aims to provide an independent assessment of the company in question, its opportunities, risks, etc. The purpose is to provide an objective and professional set of data for owners and investors to use in their decision-making. Redeye Rating (2019-10-27)
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Rating People Business Financials
5p 10 9 1 3p - 4p 75 59 29 0p - 2p 10 27 65 Company N 95 95 95
CONFLICT OF INTERESTS
Westman owns shares in the company : Yes Nilsson owns shares in the company : No Redeye performs/have performed services for the Company and receives/have
received compensation from the Company in connection with this.