Annons
Annons
En strålande avslutning på året?
Av Redaktionen
In RaySearch we see a case that has the potential to be strong in the 6–12 month horizon. With gross margins north of 90%, this is a case that can scale really well with continued sales growth. Weak deliveries in Q2 have led investors to wonder if the growth journey has slowed down, which in our opinion has created an attractive entry point into the stock.
Discuss the stock and analysis in our Facebook group or on our Discord .
[toc]
Intro
RaySearch develops software that optimizes radiation therapy for cancer. Its main product, RayStation, is a treatment planning system for radiation therapy.
Simply put, a treatment planning system takes images of the patient and combines them with how radiation is delivered. The system then calculates a plan that maximizes radiation to the tumor while minimizing radiation to healthy tissue.
RayStation is currently available in over 1,000 clinics globally and the US is the company’s largest market with ~40% of sales. The market share is largest in proton therapy where 43 out of 46 clinics in the US and Canada currently use RayStation. A large part of the company’s “moat” lies in the fact that RayStation can be connected to many different machine types, not just one hardware supplier.
The company primarily makes money through an initial license fee when a clinic starts using the software, and then an annual support fee that provides continuous updates, improvements, and support.
The company's CEO Johan Löf is the largest owner with around 10% of the capital and 40% of the votes.
Financial
Our view is that the stock market has long viewed RaySearch as a dull company with stagnant sales for several years. However, since 2022, growth has picked up.
The company has made a very nice margin journey in recent years and has had an average EBIT margin of 20% in recent quarters. The company's financial goal is to increase this to 25% in 2026.
As a large proportion of the company's sales consist of software, where the marginal cost of selling an additional unit is essentially non-existent, gross margins are over 90%. This provides very good potential for margin improvements as sales increase. Support revenues are also growing in line with the installed base and are an important stabilizer of cash flows. Management has pointed to continued growth in support revenues, which speaks to improved visibility and a better margin mix over time.
Investment idea
We are in a situation where the share price has been under pressure due to a poor Q2 report, as well as major sellers who have been pressuring the share for some time. DNB Carnegie recently brokered two large blocks between SEK 220–230/share and it is possible that a major seller is now ready. This, combined with an upcoming Q3 report where the comparative figures look appetizing and analyst estimates are not overly optimistic, has in our opinion created an interesting entry position in the share.
The company delivered a weak Q2 report in terms of order intake, sales and EBIT. Management explained this by the fact that several orders were delayed and instead ended up in Q3. The dollar and one-off items also pressured profitability. In addition, the comparative figures were relatively difficult, with Q2 2024 being a really strong quarter. The CEO is clear that they do not see Q2 as a break in the trend but rather a consequence of temporary effects.
We see opportunities for the Q3 report to show a clear improvement, both Y/Y and Q/Q. The CEO mentions that order intake in July was SEK 56 million higher than in July 2024, which is significant compared to the company's average quarterly sales. For Q3, we are forecasting strong order intake and sales of SEK 319 million, which would correspond to growth of 9% Y/Y. This is something we believe the market would react positively to, given the declining growth in the previous quarter. We believe that the Factset consensus is slightly low at SEK 304 million.
We estimate that EBIT may come in slightly lower Y/Y but with a clear improvement Q/Q. We believe that order intake and sales should be what the stock market is focusing on at the moment.
Estimate
Valuation
We see Sectra as the company's most relevant peer, as they are both healthcare software companies. However, in our peer analysis we include additional fast-growing healthcare companies to obtain a larger sample.
After the recent decline in the share price, RaySearch is now trading in line with its peer group, both on sales and earnings multiples. In recent years, the share has traded at a premium and we believe we will see a multiple expansion from here if the company returns to growth in the coming quarters. Below we have done a sensitivity analysis where you can see the potential upside/downside of the share depending on which multiple you think the company should have.
We believe that an EV/S multiple of 7-8X for 2026e is reasonable if the company delivers in line with our estimates. This would imply a potential upside of 30-50% over a 12-month horizon.
Risks
We believe that the biggest risk lies in sales developing worse than we and the consensus expect. The company has shown that the operating margin can be improved and we do not see this as a major risk.
Summary
After a temporarily weak Q2, we expect both Q3 and Q4 to show a clear return to growth, something we believe can drive multiple expansion. With gross margins above 90%, the company has a business model that scales very well with continued sales growth. Overall, we see good upside in the share over the 6–12 month horizon.
Disclaimer: The writer owns shares in the company.
Discuss the stock and analysis in our Facebook group or on our Discord .