Biohit H2'24: Progress despite a bumpy road

Translation: Original published in Finnish on 2/13/2025  at 8:00 am EET

Biohit's figures were already largely known based on preliminary data and the H2 report was in line with expectations. The tense situation in the Middle East, which impacted revenue at the end of last year, adds uncertainty to the current year as well, which is reflected as increased caution in the 2025 guidance. We lower our forecasts moderately for the coming years based on continuing uncertainty and the company’s guidance. Long-term expectations remain largely unchanged. We reiterate our recommendation (Reduce) and target price (EUR 3.2), while the risk/reward ratio remains slightly unsatisfactory.

Growth fell short of targets

Biohit’s H2 revenue was 6.9 MEUR, which was in line with our forecast and the profit warning issued at the end of the year regarding revenue. The full-year growth was 9.2% (H2 4.6%), which was below the company's strategic target of 15-20%. The key reason was the risks related to advance payments that emerged at the end of the year, stemming from the escalated situation in the Middle East. According to the report, uncertainty continues in early 2025, as a result of which the bottom end of the company's 10-20% growth guidance has been set below the strategic target. Geographically, growth was seen in Asia, where the company has reported progress in South Korea. The Other countries segment, in turn, declined, which we believe indicates challenges in the Middle East region.

The earnings machine was in full swing

Biohit’s H2 operating profit was 1.2 MEUR, which was also in line with our expectations and preliminary information. The result increased clearly from the comparison period (H2’23: 0.3 MEUR) and was 18% of revenue for both H2 and the full year. The good result in H2 was explained by the high share of high-margin own production sales. Correspondingly in H1, OEM sales were relatively higher, resulting in a lower gross margin, but correspondingly higher revenue. The range of the operating profit guidance is very wide at 10-20% of revenue. Thus, there is significant uncertainty related to earnings forecasting, as the sales mix (relative share of own production, OEM production and distribution product sales) strongly impacts profitability and is difficult to estimate from the outside.

Forecasts trimmed a little

We lower our estimates for the current year based on the continuing uncertainty in the Middle East and the company's guidance. Our old 2025 forecast was clearly higher than the top end of the company’s guidance. Regarding profitability, we have already previously considered the pressures on the gross margin, so the changes remain moderate, especially as costs seem to be growing slightly slower than our expectations. However, our earnings forecasts also show a decline, driven by revenue. Our longer-term forecasts remain mainly unchanged with relatively low visibility.

Valuation image remains unchanged

On our estimates that include strong growth, the P/E multiple for the stock in 2025 is 21x and the EV/EBIT multiple is 15x, which is in the middle of our estimated fair value range of 12x-18x. The multiples are slightly below global large-cap peers, which we believe is justified by Biohit's higher risk profile. With the revenue-based EV/S multiple (2025 EV/S: 2.2x) and when viewed from a cash flow perspective, we believe the share is fully valued. In our view, the valuation is not unduly highand we believe the stock is roughly priced correctly. However, the lack of a margin of safety means that the risk/reward ratio is still too low, so we are staying on the sidelines for a better buying opportunity.