Nexstim Q2'24: Potential attracts again

This report is a summary translation of the report “Potentiaali houkuttelee taas” published on 8/18/2024 at 6:18 pm EEST.

Nexstim's H1 report was broadly in line with expectations and the company reaffirmed its outlook for the remainder of the year for comparable revenue growth and improved EBIT. Our forecast revisions are minor as the company's outlook remains largely unchanged. In the short term, the value of the stock may fluctuate significantly depending on the implementation of the Sinaptica agreement. We are raising our recommendation to Accumulate (previously Reduce) to reflect the improved risk/reward ratio resulting from the share price decline. 

Revenue was in line with expectations, supported by strong system sales

Nexstim's H1 revenue was 3.2 MEUR and almost in line with our forecast (3.4 MEUR). This represents an increase of 27% over the weak comparison period. The company delivered a total of 10 systems during the period, half of which were new NBS6 systems. Deliveries increased from 8 in the comparison period. Based on the reported revenue figures, we conclude that the majority of the NBS6 systems are supplied on a rental basis. This means that the revenue from the purchase price is recognized as recurring revenue over an extended period of time. The company reaffirmed its guidance for the remainder of the year, expecting comparable revenue growth and an improvement in EBIT. Based on H1, we believe that achieving this is realistic.

No surprises in earnings performance

EBITDA of -0.5 MEUR and EBIT of -0.9 MEUR improved significantly year-on-year and were in line with our forecasts. Profitability was supported by high-margin recurring revenue growth. Cash flow from operating and investing activities was -0.24 MEUR, positively impacted by the repayment of trade receivables (0.96 MEUR) accumulated at the end of 2023. Cash and cash equivalents at the end of the period amounted to 3.0 MEUR strengthened by the R&D loan and the convertible bond issued in early summer. As a result, the company's cash position is currently in good shape.

Forecasts revised only slightly as outlook largely unchanged

Our revenue forecasts remain virtually unchanged, as there were no material changes in the outlook for the H1 report. We are revising our cost projections slightly upward as headcount has grown faster than expected. This will have a slightly downward impact on the forecast for the coming years. Our H2'24 forecast includes 1 MEUR of revenue based on the letter of intent with Sinaptica in Alzheimer's disease. If the contract is finalized as expected, this could lead to even higher returns for the rest of the year. On the other hand, a no-deal would likely lead to a much weaker performance than our forecasts for H2.

Collaboration agreements can cause big swings in stock price

Our valuation is based on EV/S multiples and the DCF model. Nexstim's 2024e EV/S is 2.5x and decreases to 1.8x in 2025e. The multiples are moderate relative to the profitability potential. Beyond this year, visibility to growth prospects remains low. The DCF suggests a value of EUR 3.7 per share and a reasonable upside. We believe that the stock is moderately attractively priced after the share price decline and that the opportunities outweigh the risks. However, we would like to point out that the agreements and settlements with Sinaptica and Magnus Medical could have a significant impact on the share price one way or the other.