Physitrack reported Q3’23 sales of EUR3.9m, 14% y/y growth, 5% below our estimate. When excluding negative FX effects, organic sales grew by 17% y/y. Further, sales increased by 4% on a q/q basis, an improvement from last quarter when sales q/q were close to flat. Organic growth was derived from both the Lifecare and Wellness divisions, which grew 11% and 29%, respectively, y/y. Year-to-date organic growth stood at 27%. Adjusted EBITDA (adjusted for EUR0.2m in acquisition and integration costs) reached cEUR1.1m in the quarter, corresponding to an EBITDA margin of 27% (27%), 1pp below our estimate. Operating expenses (OPEX) were slightly lower than estimated, compensating for a softer top-line.

Cash flow from operating activities before payments of adjusting items was EUR0.9m (EUR0.7m), whereas the free cash flow was - EUR0.3m. By the end of Q2’23, Physitrack held a EUR0.4m cash position, but the available liquidity, including the Revolving Credit Facility (RCF) corresponds to EUR2.3m. We note an additional cEUR1m tie-up in working capital during the quarter, which the company expects to be released gradually during 2024. Further, management re-confirms “that it is expected there will be no further deferred contingent consideration payments for the remainder of the financial year, and no additional capital raising via share issuance or debt.” During the conference call, the management also confirmed that the current liquidity is sufficient to cover all organic expenses in the future. However, the CEO left the door open for capital raises via equity or debt if/when Physitrack decides to open up its M&A program again. However, we believe opening up the M&A program before yielding stable FCF in the current market environment is premature.

We have made minor adjustments to our near-term estimates following Physitrack’s Q3 report. We have trimmed our sales forecasts by -2% for 2023e–2024e and lowered our OPEX estimate by 2% for the same years. Reflecting our estimate revisions and the impact of rising interest rates, we adjust our fair value range to SEK12-76, with a base case of SEK38 (SEK41) per share. Currently, Physitrack is trading at an EV/EBIT of 8.5x based on our 2024e and an EV/EBITDA of 3.8x. Compared to its peers, median EBIT multiples for 2024e, Physitrack trades at a c45% discount.