Physitrack reported a y/y organic growth of 11%, resulting in sales of EUR3.8m, 4% below our estimate. When including negative FX effects (2%), sales grew by 9% y/y. The deviation was mainly stemming from lower-than-expected sales from the Wellness division. Further, sales were close to flat on a q/q basis, a decline from last quarter when sales q/q were 3%. However, under the hood, subscription revenues grew on both a y/y and q/q basis. A decrease in one-off revenue sales in the quarter led to a slight drop in quarter-on-quarter revenue. When excluding the decrease in one-off revenues, sales grew by 16% year-on-year and by approximately 4% quarter-on-quarter within the Wellness division. ARR grew by 9% y/y and amounted to EUR12.0m, representing a 2% q/q growth and on par with our estimate. Adjusted EBITDA (adjusted for EUR3.8m in a revaluation of earnouts, acquisition and integration costs) reached cEUR1.0m in the quarter, corresponding to an EBITDA margin of 26% (25%), 2pp below our estimate. The free cash flow was EUR0.3m, an improvement of cEUR0.6m q/q.

Although management remains confident in achieving its medium-term growth target of 30% organic growth, we cannot overlook the low sequential growth during 2023. The Lifecare division performed in line with our expectations during 2023, and we believe it can grow by 10-15% per year. We anticipate the slowdown observed in H2 2023 within the Wellness division will persist during H1, with an expected group growth rate of 12-14% during this period. Further, as we enter 2024, comparables become more challenging, especially in H1 2024. Regarding Free Cash Flow (FCF), management expects a positive result for FY 2024. However, it is worth noting that they do not include earnout payments when referring to FCF. We estimate that Physitrack will achieve an EBIT margin of around 9% and positive FCF since both the cost base and CAPEX levels from 2023 seem normalised in absolute numbers.

Following the Q4 2023 report from Physitrack, we have trimmed our sales forecasts for 2024e–2025e by 7% and 5%, respectively. Reflecting our estimate revisions and the impact of a weaker EUR/SEK, we adjust our fair value range to SEK9-75 (SEK12-76), with a base case of SEK35 (SEK38) per share. Currently, Physitrack is trading at an EV/EBIT of 13.5x based on our 2024e and an EV/Sales of 1.2x. Compared to its peers, median EBIT multiples for 2024e, Physitrack trades at a c40% discount.