Biohit: Performance surprised positively

Translation: Original published in Finnish on 12/23/2024 at 07:00 am EET

Biohit issued a profit warning related to revenue, but despite this, the new 2024 earnings guidance (EBIT percentage 16-18%) clearly exceeded our expectations. Biohit’s profitability fluctuates, so we do not expect profitability to reach the very strong H2’24 level in the future. However, we raise our earnings forecasts moderately for the coming years based on the strong performance. The return/risk ratio of the stock that we already consider attractive improves another notch, so we raise our recommendation to Buy (was Accumulate) and raise the target price to EUR 2.9 (was 2.7).

Revenue growth slower than expected, but profitability remains strong

On Thursday, Biohit lowered its revenue guidance for 2024. The company's December revenue is lower than forecast due to the tightening situation in the Middle East. The downgrade of the revenue guidance was not particularly dramatic compared to expectations, as it appears to be mainly due to the postponement of deliveries for the rest of the year to next year.  We estimate that the majority of the deferred revenue will be recognized in H1'25. The company is delaying shipments to the region due to payment delays. According to the new guidance, 2024 revenue will be 14.1-14.4 MEUR (was 15.1-15.7 MEUR) and operating profit percentage 16-18% (previously at least 10%). Our forecast for this year was for revenue of 15.1 MEUR and EBIT of 2.0 MEUR (13.3% of revenue). With the new guidance, EBIT for 2024 will be around 2.26-2.59 million, which is well above our current expectations.

Profitability fluctuations

A possible reason for the strong profitability at the end of the year could be the significant increase in the share of revenue accounted for by high-margin in-house production, for example, due to individual large orders. However, there is no certainty at this stage. Biohit's profitability in the beginning of the year was clearly down year-on-year, but by the end of the year it was well above the comparison period. In H1'24, profitability was negatively impacted by the increased share of OEM sales at the expense of own production sales. We estimate that the situation may have reversed towards the end of the year. We believe it is too early to conclude that profitability will be permanently higher, and we may see more ups and downs in the future. Further information on the reasons for this result will be available at the latest at the time of the annual financial statements.

We raise our forecasts, but H2’24’s whopping profitability is probably a one-off

We lower our revenue forecast for the current year to 14.3 MEUR, which is around the mid-point of the guidance. We expect most of the deferred revenue to be realized in H1’25. Due to the postponement, our 2025 revenue estimate increases and the forecast for 2026 remains roughly unchanged. Our EBIT forecast for the current year rises to 2.4 MEUR. We also raise our 2025-2026 earnings forecasts moderately. However, we do not expect the exceptionally strong performance of H2’24 to be the new normal but expect profitability to return closer to longer-term trends.

The return/risk ratio is attractive from all angles

The valuation picture looks attractive across the board in terms of revenue (EV/S 2025e: 1.4x), earnings (EV/EBIT 2025: 9x), cash flow statement (DCF: EUR 3.0), and compared to the peers We find the return/risk ratio of the stock quite attractive, considering the growth, performance and defensiveness.