We see a stable Q1 2024 report from Kontigo Care, meeting our projected outcomes with no significant deviations apart from an elevated OPEX due to several one-time expenses. The municipal sector in Sweden continues to face challenges with tightly constrained budgets, a trend anticipated to persist throughout the year. Meanwhile, the newly launched Previct Drugs is expected to attract new customer segments. In addition, we believe there are several ongoing discussions regarding partnerships for launching Previct Drugs outside Sweden.

Net sales for the quarter were SEK7.6m (7.1), reflecting a y/y growth of 7% and 2% q/q growth, 4% above our forecast. Net sales per country were SEK7.3m (6.6) for Sweden and 0.3 (0.5) for Finland. The lower sales y/y from Finland are derived from Kontigo Care taking over and building up the Finish distribution. Higher capitalised development and net sales offset the OPEX surprise, resulting in an EBIT margin of 3%, consistent with expectations.

During the quarter, the company secured two new frame agreements with municipalities. Kontigo Care now has agreements with c60% of the municipalities in Sweden. The base of active licenses decreased during the quarter from 981 to 871. MRR (Monthly Recurring Revenue) was SEK2.5m, a 2% decrease q/q and a minor negative deviation of 4% vs our estimate.

OPEX amounted to SEK9.5m (10.4), 22% above our projected SEK7.8m. One-time expenses related to the CEO change, the establishment in Finland, and higher finance costs explain the deviation.

Kontigo Care uses capitalisation, i.e., it records an asset (in this case, development costs) on the balance sheet instead of immediately expending it on the income statement. In Q1, Kontigo Care activated SEK3.1m for development (mainly derived from the new Previct Drug application), while D&A amounted to cSEK0.6m (amortisation amounted to SEK0.2m). EBITDAC (EBITDA- CAPEX) was -SEK2m, which was no surprise since Kontigo Care continues to invest in the Previct drug application and the Previct platform. The CEO, Ulrika Giers, has referred to 2024 as an investment year.

For SaaS businesses such as Kontigo Care, EBITDA and EBITDA margin are not ideal profitability metrics as they do not account for R&D costs. Since R&D is often a significant expense in this sector, metrics like EBIT (which amortises capitalised R&D over time) or EBITDA minus capitalised R&D / EBITDA- CAPEX offer a more precise perspective on underlying profitability. Our preferred metric is EBITDA minus CAPEX, treating all R&D expenses as upfront costs.

Cash flow from operating activities was cSEK0.1m. CAPEX was SEK3.1; by the end of the quarter, cash and cash equivalents amounted to cSEK6.6m. During April, Kontigo Care carried out a directed share issue of SEK10.5m to its main owner, ShapeQ GmbH. We estimate that the current cash position is around cSEK14m.

Despite achieving an all-time high net sales during the quarter, we anticipate a challenging 2024 ahead in terms of growth due to reduced municipal budgets. An indication of this is the quarterly MRR decrease on a q/q basis. Meanwhile, the new Previct Drug during ’24 will likely help attract new customer segments and has the potential to become pivotal for Kontigo Care. We believe several discussions are ongoing regarding partnerships for launching Previct Drugs outside Sweden. We think a partner strategy for international sales is wise for a small company such as Kontigo Care.
The announcement from April that the company has reached an important milestone on the path to CE certification under the new EU regulation for medical devices, MDR, adds to a positive outlook. The review of the comprehensive technical documentation is completed and approved. We believe the transition to MDR and the CE certification of Previct Alcohol as a medical device software strengthens the company’s competitive position and enables growth and development outside Sweden.
The directed share issue of SEK10.5m in April to Kontigo Care's main owner, ShapeQ GmbH, is encouraging for several reasons. Firstly, the less than 1% discount is advantageous, especially in the current challenging market conditions. Secondly, the knowledge that the main owner has supported and is likely to continue supporting the company is reassuring. Thirdly, with capital secured, management can now concentrate on executing its strategy rather than spending time raising growth capital.

We have made minimal adjustments to our forecast. We are still factoring in a growth rate of 3% for 2024e, aligning with the 2% growth in 2023. In our estimates, we are currently not factoring any sales outside Sweden and Finland. Details of our revised forecasts for the years 2024-26e are summarised in the table below:

We value Kontigo Care using a DCF valuation based on certain long-term sales growth and margin assumptions. Our valuation remains intact with a Base Case of SEK5.8 per share and a fair value range of SEK1.1 per share to SEK12.3. Further, our valuation already included the dilution from the directed share issue of SEK10.5m in April. Our valuation does not factor in any additional dilution, as we believe the current cash position to be adequate. However, if Kontigo Care pursues a more aggressive sales strategy, additional growth capital is likely required. Our base case is derived from the financial forecasts in the table above and the long-term assumptions outlined in the table below.