Revenio CMD today: Focus shifts towards integrated and proactive eye care pathways

Translation: Original comment published in Finnish on 11/30/2023 at 10:27 am EET.

Revenio is organizing a Capital Markets Day for investors and analysts today November 30, 2023, starting at 2.00 pm EET. You can follow the event here. The company's objectives and priorities for the 2024-2026 strategy period will be discussed at the CMD. Over the next three years, the company's focus will shift towards integrated and proactive eye care pathways, which we believe is a logical progression for the company. From 2025 onwards, the company aims to grow three times faster than the market, with annual revenue growth of more than 12% as a starting point. In particular, we expect today's CMD to provide more detailed information on the expected development of the company's growth initiatives (such as HOME2 and ILLUME) in the coming years, as well as information on the role of the company's software and partners' AI in the strategy.

Core of the updated growth strategy

Revenio's updated growth strategy continues to focus on the eye care market, and the company aims to raise the quality of clinical diagnostics through product innovation. In addition, the aim is to streamline clinical care pathways with integrated and proactive eye care solutions. The company will also further enhance its customer focus in operations and sales, while further developing its strengths in people and culture. As part of its strategy work, Revenio has assessed its ESG priorities and metrics. The company has set objectives for the coming years that focus on creating value for its stakeholders, society, people and the planet.

The cornerstones of the updated strategy for 2024-2026 are, according to the company:

1. Improve the quality of clinical diagnostics with targeted product innovations
2. Optimize clinical care pathways with connected and predictive solutions
3. Enhance customer focus in operations & sales
4. Continue to develop People & Culture as a foundational strength
5. Continue sustainable and profitable growth

In our view, the focus areas and strategy cornerstones did not contain any material surprises, but we would welcome further clarification from the company in the day's presentations, especially on the company's software and AI strategies. We look forward to receiving comments in particular on what the company sees as the winning recipe in AI and how it can manage the whole as a device manufacturer. As regards devices, we are interested in the growth and profitability profiles for different product areas at different stages of maturity, for which we are seeking further information.

Profitable growth in the coming years

Over the period 2016-2022, Revenio has gained market share. According to the company, the average annual growth of the company's revenue during this period has been around 27%, compared to a market growth of around 4-5%. Revenio's global target market is the market for ophthalmic diagnostic equipment, which has grown at an average annual rate of just over 4%. Revenio aims to continuously improve the market share of all its main products. The company aims to achieve a growth rate three times faster than the average market growth rate for ophthalmic diagnostic devices from 2025 onwards.

This means an annual growth rate of at least more than 12%, which we believe is a reasonable target. It is noteworthy that the company does not expect this level of growth in 2024, which is in line with expectations. In our current forecasts, we expect revenue growth to be below 7% in 2024, but to accelerate significantly to over 16% in 2025. We seek to find out in more detail what the company sees as the most important growth drivers and what the company sees as the role of, e.g., the HOME2 product family and ILLUME solutions. In our own forecasts, these growth drivers will become more important in the coming years, but the visibility on small revenue streams such as AI is low.

The company reiterated its assessment that the next six months will be challenging due to the macroeconomic outlook. The company expects the market situation to return to normal from the second half of next year. This is in line with our current forecasts and should not cause a tremor in the consensus forecasts either.

Guidance for 2023 unchanged

Revenio reiterated its previous guidance for 2023, where the company expects revenue growth at constant exchange rates to be 1-5% compared to the previous year and profitability to remain at a good level excluding non-recurring items. Achieving this guidance requires a strong end to the year, but we expect the company to meet its guidance despite the challenging market environment. However, reiterating the guidance slightly reduces short-term uncertainty. As expected, no guidance for next year has been issued so far, but this will be done in the context of the financial statements release on February 15, 2024.

Dividend policy

Revenio aims to distribute dividends in a sustainable way that does not jeopardize the liquidity of the parent company or the Group. Revenio is a growth company, and if attractive acquisition targets arise, the company can change the level of dividend distribution to finance potential acquisitions. Revenio aims to maintain a strong balance sheet to support M&A opportunities that will accelerate profitable growth. We believe that dividends are of limited importance in the investment story and that a moderate dividend policy is understandable at a stage of the company's development where it is actively seeking inorganic growth.