Although sales growth was slightly weaker than we estimated due to the pandemic, Zenicor delivered a positive EBIT for the third consecutive quarter, which continues to prove its flexible cost base. The main takeaway in the quarter was the large, important deal in Finland, showing its strength in tough times, which should support market trust. Looking ahead, we expect new deals to be signed and continued healthy growth for the company.

New sales held back by pandemic.
While new sales were down 20% y/y in Q3 (SEK0.8m lower y/y), the company said the COVID-19 situation is slowly turning around towards the end of the year and new deals are set to be signed, in line with our estimates. Further, with the majority of Zenicor’s revenue being recurring, we estimate, sales will have downside protection in a scenario where additional lockdowns occur. However, we expect new sales to be subdued during the year and hold back growth temporarily.

Zenicor shows strength with large deal in Finland.
During the quarter, Zenicor announced a new deal with Finland’s largest private healthcare provider Terveystalo Oy. The deal is worth an estimated EUR0.25m per year (+12% on Zenicor’s 2019A sales level). We see the Terveystalo deal as important in terms of confidence in estimates and a sign of strength in tough times. Going forward, we see a high probability of Zenicor gradually signing new contracts in the country.

Continued successful adjustment of cost base.
Zenicor continued to deliver a positive free cash flow (SEK0.7m) and positive EBIT (SEK0.16m) for a third consecutive quarter. In our view, this should continue to strengthen investor confidence in Zenicor’s ability to adjust costs and deliver positive results even when sales are subdued.

Estimates and valuations.
We adjust our sales estimates for 2020 and 2021 by -7% and -12.5%, caused by the pandemic situation affecting new sales in the near term. However, with the new deal in Finland supporting top-line growth, our sales estimate is less affected. In the longer term, when the pandemic situation eases, we expect sales growth to be in line with the company’s estimated growth target. We keep our valuation range largely unchanged at SEK26-31 per share (SEK26-32 previously).

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