CSAM Health Group AS (Ticker: CSAM)
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CSAM Health Group AS
Nordic provider of eHealth solutions
Disclaimer: The writer of this analysis owns shares in the company and shares have been accumulated between 76 – 100 NOK. This analysis is not a financial advice.
Summary:
- Strong market position in niche markets with strong structural growth
- Leading provider of niche eHealth solutions in the Nordics
- Consolidator and a preferred buyer in a fragmented industry with a strategy of Buy, Integrate and Build (BIB)
- Being a preferred buyer may result in a lower multiple paid in an acquisition. Normally paying 1-2 times sales
- High switching costs due to complex workflows (strong) and costly tender offers (weak)
- ~80% of sales are stable and recurring (74% recurring and another 8% is related to software and 95% of the revenue comes from public healthcare providers)
- Resilient business model proven in Covid-19 downturn
- Organic growth from add-ons to the software solutions
- Solid cornerstone investors in IPO, and new bond loan facilitates future growth through M&As and strengthen balance sheet
The initiative behind CSAM was taken by employees at Rikshospitalet in 1999 and was formally established in 2005 together with the development of the Connected Healthcare technology. Since 2005 the company has executed numerous acquisitions and grown from a small, clinical software vendor to one of the leading Nordic eHealth niche players. In 2020 the company was listed on Euronext Growth Oslo (Merkur Markets) and raised NOK 325 million in gross proceeds as well as an issuance of a bond loan of NOK 300 million (3 months NIBOR +500bps).
The company operates in niches (connected healthcare, medical imaging, women and children’s health, emergency and acute care, medication management, and laboratory information management systems) and has most of the hospitals in the Nordics on their clientele list.
Mergers & Acquisitions
Acquisition targets are carefully selected based on a clear strategic fit, and fully integrated into CSAM with a “Buy, Integrate and Build (BIB)”- model. Value creation through a combination of stable recurring revenue, strong organic growth (CSAM is expecting ~10% from 2020 – 2025) and strategic M&A. Multiple paid for acquired companies are normally around 1-2 x sales, hence the dilution effect for existing shareholders are small / positive. The eHealth industry is a highly fragmented industry with many smaller players which are active in a single niche. CSAM’s goal is to consolidate parts of this industry and fully integrate the acquired companies into their organisation.
Financials (Forecast 2021-2025)
Financials for 2014 – 2019 has been downloaded from the Brønnøysund-register. NGAAP-accounting standards so I’ve adjusted the amortisation principles to better reflect the lifespan of the assets. This adjustment was also announced in the Q3-reports of the Company and is the main reason for improved EBIT-margins compared to prior years. Cash-flow from operations has been positive since 2016 (see appendix for cash flow statements 2014-2020E).
The key elements driving the model is acquisitions, organic revenue growth and low margins variability. Historically the gross margins have been ~84-89%, implying solid unit economics. The proceeds from the equity and bond loan issuance gives the Company a good runway to make accretive acquisitions. Input into the model is more conservative than the guiding from the company and I forecast a revenue CAGR of 21% from 2021 – 2025 and earnings CAGR (pre-tax) of 14%. Based upon the model the company is now trading at P/S 8.5 for 2020 and P/S 5 for 2021 (comparable Nordic SaaS-companies trades in the range 10 – 30).
The “Buy-and-Verify-thesis”- model:
Appendix
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- Key events
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- Cash flow statement 2014 – 2020E
Carmenta-aqcuisition:
CSAM adding 81MNOK in sales, EBITDA-margin of 12.3% and price paid is EV/Sales 1.85. Carmenta will be included in the “Emergency & Acute” segment. Will most likely have a negative impact on margins in the short-term since the”buy-integrate-build”- model takes approximately 1 year (ref Arcid and Kibi acquisitions in 2019).
About Carmenta: Link
From press release: Link
CSAM Health Group AS acquires Carmenta’s Public Safety Business (closing 15 February 2021)
Carmenta Public Safety reported annual sales of ca 81 MSEK in 2020 with a corresponding EBITDA of > 10 MSEK.
The acquisition is based on an agreed enterprise value of 150 MSEK on a cash-free and debt-free basis implying an EV/sales multiple of 1.85x based on 2020 reported figures. The acquisition will be settled in cash.
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