Modulight Q4'24: Indications of improving outlook

Translation: Original published in Finnish on 2/24/2025 at 8:00 am EET.

Modulight's reported figures were neutral compared to our forecasts, with a revenue beat but EBIT falling short of our forecasts by 0.2 MEUR. Otherwise, the report showed positive signs of increased order book and an increase in the number of hospitals using the products. Although no guidance was given for 2025, the outlook for the future provided more support for our growth expectations. We leave our growth forecasts broadly unchanged, but our confidence in growth is on a firmer footing than before. This raises our view of acceptable valuation multiples and reduces the risk associated with the realization of forecasts. Thus, we raise our recommendation to Accumulate (was Reduce) and our target price to EUR 1.3 (was 0.9). A good expected return requires a continuation of the positive trend. The risk level remains high.

Order book and number of hospitals increased towards the end of the year

Modulight reported its order book grew by 3 MEUR year-on-year. Orders had been accumulating steadily throughout the year, and the pace accelerated toward the end of the year. According to the report, the good progress continued in early 2025. In a year, the number of hospitals using Modulight products has increased from about ten to about fifty. The growth was mainly in Q4 and the company expects the good development to continue during 2025. Although no guidance was given for the current year, we felt that the report provided more concrete information on developments in the current year.

No big surprises in the figures

Modulight’s Q4’24 revenue stood at 1.43 MEUR (Q4’23: 1.02 MEUR), beating our estimate of 1.20 MEUR. Full-year revenue of 4.10 MEUR was flat year-on-year (2023: 4.03 MEUR). Q4'24 EBIT landed at -2.20 MEUR, slightly below our forecast (-2.01 MEUR). The miss was primarily due to increased depreciation as a result of the introduction of new equipment. Operating costs were in line with our expectations. Cash flow from operating activities and investments in Q4 was -0.66 MEUR, improved by one-off financial items (1.54 MEUR) and a decrease in working capital (0.30 MEUR). Net cash assets decreased to 12.86 MEUR from 18.59 MEUR in the previous year. The balance sheet remains strong, but the company needs a significant revenue uptick to turn cash flow into a sustainable positive position.

Forecasts remain largely unchanged

Q4 was clearly Modulight's best quarter of the year in terms of revenue. The outlook was also more concrete than before, which increases confidence in our forecasts. Our growth forecasts remain broadly unchanged, but we are lowering the WACC in our model to reflect improved visibility. We expect growth to accelerate in the coming years, but there is still a lot of uncertainty about the outlook. We cut our EBIT forecasts for the next few years. This is due to higher depreciation, which has no cash flow effect.

Opportunity for those willing to risk

The stock is very difficult to value due to the uncertainty of earnings and cash flow turnaround. The valuation relies heavily on future projections, which carry a high degree of forecasting risk. EV/S multiples of 6x-5x for 2025-2026, which we find cautiously attractive. The DCF model suggests a moderate upside for the stock. We are assuming a positive view on the stock due to the positive signals from the business and the resulting increase in confidence. We emphasize that, in our view, a sufficient expected return on the stock requires a continuation of good performance, which is difficult to assess at this stage.