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Doro - Gradually shifting into a telecare company

28 september 2020

Doro’s acquisition of Eldercare fits well into its strategy
We lift our ‘21e Care sales by 7% and group sales by 3%
Care to account for 41% of sales in 2022e – 8x ‘21e P/E
Doro is now a top-2 telecare company in the UK
We like Doro’s acquisition of Eldercare, which is a top-5 player in the UK telecare market and generated sales of GBP 4.6m (~SEK 52M) in ‘18/’19. While we lack information in terms of gross profit and EBIT, we believe that the acquisition adds a lot of strategic value to Doro as it will make it the second largest telecare company in the UK. Eldercare will add ~50,000 connections, meaning that Doro now has about 355,000 active telecare connections. The transaction price amounts to SEK 25m, corresponding to 0.5x EV/sales. This is a slightly lower multiple when compared to Doro’s previous acquisitions. We think that this could be because of Eldercare’s relatively small size.

We lift our 2021 Care sales estimates by 7%
Following the acquisition, we lift our Care sales estimates by 3% for ‘20e and by 7% for ‘21e, resulting in +1-3% on our ’20-‘21e group sales estimates. We now forecast Care to exhibit a ’19-‘22e sales CAGR of 17%, partly amid recent M&A, but also on the back of Doro’s strong position in a rapidly growing market (15% 2018-2024e sales CAGR, according to Berg Insight). As such, we forecast Care to account for 41% of sales in 2022, up from 23% in 2019. For Q3, we forecast sales of SEK 425m, corresponding to -19% y-o-y, derived from Care growth of +12% y-o-y and Phones growth of -28% y-o-y. Just like in Q2, we expect Doro to show good cost control in Q3, in which we forecast an adj. EBIT of SEK 19m, for a margin of 4.5% (vs. 7.0% in Q3’19).

Good outlook for improved margins ahead – 8x ‘21e P/E
While COVID-19 has hurt Phones sales and in turn group EBIT, we see strong upside in the EBIT margin in the coming years due to 1) improved sales mix (Care has group-accretive margins), and 2) its restructuring programme starting to yield results, in which Doro aims for opex savings of SEK 110-130m per year, primarily for Phones. We have only included opex savings of around SEK 100m for 2021e, meaning that there could be upside to our Phones EBIT estimates if Doro can reach its target.

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