Dedicare AB

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  • #898

    Markus Enge

    Moderator

    Probably easiest to read the attached PDF

    DEDICARE AB

    Staffing company for medical personnel
    Written: 21.03.2021

    By: Markus Enge

    Disclaimer

    The writer of this analysis owns shares in the company. This analysis is not financial advice. Shares have been accumulated at SEK 51.


    About Dedicare (DEDI)
    Dedicare has been operational since 1996 and had its initial public offering on Nasdaq Stockholm in May 2011. Dedicare is what is known as an authorized staffing and recruitment agency, which has implications including it having collective bargaining agreements in place for all employees.

    The Company’s business concept is to provide the market with the skills that temporarily or permanently satisfy the need for qualified healthcare and social work staff at the best price. The goal is to become one of the leading staffing providers in healthcare and social work in Europe.

    The main customer is the public sector in the Nordics (more than 90% of revenue).

    The largest customer in Sweden, the Stockholm region is about 24% of Swedish revenue. Norway, Helse Sør Øst about 13% of the Norwegian revenue. In Denmark about 23% from Region Nordjylland.

    Main risks
    ·      Political risk in Norway if the government changes to a left leaning coalition that wants to limit private staffing companies in the private sector.

    ·      Other political restrictions or demands from staffing companies in the health sector.

    ·      Their European expansion plans might lead to expensive M&A that decrease EPS

    ·      Sweden division has been losing money/had low profitability for a long time, due to large competition

    ·      Might get bad publicity if they earn too much on “public” deals

     

    The Numbers

    The Company has had decent revenue growth, however, the margin has been suffering due to poor performance over time in their Swedish branch.

    The net profit graph is a bit misleading since they have some financial posts between Sweden and Norway in each Q4. If you remove this you would see that most of the underlying profitability comes from Norway.

    The Company held back dividends in 2020, therefore the cash buffer has increased, and also they have taken up a long term loan to finance the KonZenta acquisition. They have not published the terms of this financing, however, the interest bearing part is only about 28mSEK atm.

    As for other consultancy & staffing companies they have quite limited NWC needs since customers pay roughly at the same intervals as salaries. Cash can flow through quite effectively.

    Purchase of KonZenta

    The Company acquired KonZenta in April 2020, their operation is the staffing doctors mainly in Denmark (some in Sweden), opening a new market for Dedicare. KonZenta was founded in 2014 and has grown quickly to revenue of 120MSEK in 2019/2020.

    The first 9 months under Dedicare its turnover has been 98,7mSEK and 5,7mSEK in net profit.

    The purchase price had 3 components:

    1.    About 30mSEK in cash

    2.    About 340 000 shares in Dedicare were issued to the seller. At the time the market value was about 15mSEK.

    3.    An earn-out based on KonZentas performance in the next two years. Unfortunately, the terms are not public, however, the payment is to be paid 1 April 2022, and can in an interval between 0 and 100% depending on the profit growth. The best estimate from management was a net value present value at 31.12.2020 of 37mSEK.

    All added together total payment assumption is about 82mSEK. So about P/S 0,7 and P/E 11 so about the same valuation level as Dedicare at the time of the transaction. The transaction also opens the Danish market for the Company.

    Management
    Björn Örås (Chair) owns 3,6m shares so more than 1/3 of the outstanding shares. He is the founder of the Poolia group, former owner of Dedicare. The remaining 4 board members have quite limited share exposure.  The total remuneration to the BOD is about 600k SEK.

    Krister Widström (CEO) owns only 3 355 shares, he has been in Dedicare since 2017 and previously worked in the Poolia group.  The compensation has been about 2mSEK per year, where up to 80% can be performance based.

    Industry

    The main hurdle to enter the market is getting the needed certifications to fulfill the requirement of public tenders and the staff to fill positions.

    Other
    B Shares have 1/5 of the votes of the A shares, this is a typical Swedish listed company structure. There are no other differences between the shares.

    The share is quite illiquid, with about 30k per day in 2021.

    Goal to distribute at least 50% of the earnings over a business cycle.

    Covid 19 had both a negative effect with higher sick absence/quarantine days leading to less billable hours, but higher demand by the public sector.

     

    Investment thesis
    ·      Adjusted for excess cash it’s trading at about 12 P/E on current earnings. Even at low future growth, the company should be a fair investment. I would expect a dividend yield of about 5% without growth.

    ·      Having access to staff in all Nordic countries can give some flexibility on movement across borders. Employees from Sweden have previously been used in Norway. And further M&A can give some scale benefits with less overhead per employee and give better ability to win public tenders.

    ·      There are a couple of ways to win; 1. Norway continues its growth.

    2. The Swedish market gets consolidated or the Swedish branch manages to cut costs. 3. The new Danish division continues its growth.

    ·      I think the market has not seen the underlying numbers of the Norwegian division and focused on the volatile net profit over the last 5 years.

    I am long Dedicare B shares. Shares have been accumulated between 51 SEK.

    Sources
    Idea inspired by @ErlingGH on twitter  / https://erlingsblogg.wordpress.com/2021/02/23/gjennomgang-av-mine-selskaper/

    Input from industry insiders through @verdiinvestoren

    KonZenta numbers:

    https://www.proff.dk/regnskab/dedicare-as/n%C3%B8rresundby/udleje/GV6Y0BI01TD/

     

     

     

     

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    #919

    Markus Enge

    Moderator

    Excellent Q1 by Dedicare. About 10m in net profit and good growth especially in Norway. The Swedish branch continues to operate at a loss, if they had shut down or sold that business P/E would be around 10 and if you exclude the excess cash you would be at a P/E of about 8,5 to 9.

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