Redeye provides an update on Kontigo Care following its Q1 2023 report. The report indicates a slightly weaker performance than anticipated. Still, we are optimistic about the impact of price increases, robust business activity, and the ongoing studies associated with the Previct Drug product. We revise our near-term projections in light of a weaker-than-expected license increase in Q1’23 and adjust our Base case to SEK10.5 per share (SEK11).

Kontigo Care’s Q1’23 report was slightly weaker than expected. However, we see no major drama as business activity remains high, and the anticipated price increases are expected to offset higher costs. The price increase occurred in March, which will gradually impact as subscription periods expire and new prices become effective. The final impact of the price increase on net revenue and results can be assessed at the end of 2023.

Kontigo Care

* Potential regulatory interference due to possible shifts in addiction treatment responsibility from municipalities to regional care.
* Limited track record of successful international expansion, with current partnerships still in the scaleup phase.
* Lack of clear financial targets from the company, making it challenging to assess long-term growth potential.
* Short-term pressure on profitability/cashflows due to planned investments in Previct Drugs and Previct Safety in 2024 and partly 2025.

* Strong recurring revenue model with over 90% recurring revenues, enhancing business stability and predictability.
* Well-positioned to benefit from secular tailwinds in digital health solutions and addiction care, supporting long-term growth potential.
* Dominant market position in Sweden, with over 60% of municipalities contracted, indicating a strong competitive advantage.
* Innovative product portfolio, including Previct Platform, Previct Drugs and Pevict Safety, addressing critical needs in digital addiction care and screening with potential for long-term relevance.
* Close collaboration with customers for innovation and high employee satisfaction, fostering continuous improvement and talent retention.

* Operating Margin (EBIT) is below 20% and is not consistently increasing, suggesting potential challenges in cost management or operational efficiency.
* Poor historical stock performance, compounded growth since IPO falling below 10%.
* Inconsistent revenue and earnings growth, failing to consistently outperform industry averages or maintain stable growth over extended periods.
* Lack of dividend payments or consistent growth, potentially limiting the appeal to income-focused investors.

* Strong gross profit margin exceeding 40%, indicating good pricing power and potential for accelerated profits with sales growth.
* Net Debt less than two times Operating Cash Flow and five times Free Cash Flow, suggesting efficient debt management and repayment capacity.
* Cash and short-term investments cover expected cash burn for more than two years, indicating financial stability and reduced need for immediate fundraising.
* Likely to become sustainably cash flow-positive in the near future, signaling potential for self-funded operations and attracting less speculative investors.
* Efficient accounts receivable management with a ratio below 20% and under the 5-year average, indicating effective collection practices.

* Recent CEO appointment (2023) limits assessment of long-term track record in value creation and consistent delivery on promises.
* Lack of clear dividend policy, potentially limiting appeal to income-focused investors.
* Share count has increased over time without corresponding EPS growth, signaling potential dilution concerns.
* Management team as a group owns less than 5% equity, which may not fully align their interests with shareholders.
* Limited information on sustainability reporting and incorporation of ESG metrics in executive compensation, potentially lagging in addressing stakeholder demands.

* Strong leadership with CEO demonstrating long-term vision, industry expertise, and commitment to innovation, particularly in digital addiction care solutions.
* Lean, decentralized organization promoting accountability, with a well-defined strategic plan focused on international expansion and value creation.
* Transparent and balanced investor communication, consistently providing relevant metrics and focusing on long-term business value.
* High insider ownership (19%) and presence of long-term committed owners, indicating confidence in the company's future.
* Diverse and experienced board of directors, aligned with business strategy and demonstrating strong corporate governance practices.

SEKm	2022	2023e	2024e	2025e
Revenue Growth	15.9%	8.9%	24.0%	21.9%
EBITDA	6.8	5.7	10.5	11.2
EBIT	2.9	1.2	6.0	8.1
EBIT Margin	10.2%	4.0%	15.7%	17.2%
Net Income	2.9	1.2	6.0	6.9
EV/Revenue	3.2	2.8	2.1	1.6
EV/EBIT	31.7	69.6	13.2	9.4

Slower growth and price increases

Financing the drug study

New Base case SEK10.5 (11)

Key financials

Q1 2023 review