Nexstim: Taking a breather after handsome returns

Translation: Original published in Finnish on 10/20/2024 at 7:13 pm EEST

On Friday, Nexstim announced that it had obtained a license in India, which means an authorization to sell the NBS5 system in a new market. We raised our medium- and long-term forecasts based on the new market opening, although the visibility of the Indian market is very limited. The share price has more than doubled since the H1 update, which has lowered future expected returns despite forecast hikes. We raise our target price to EUR 4.0 (was 3.4) with the new market opening and lower our recommendation to Sell (was Accumulate) due to the price increase weakening the risk/reward ratio.

The new market brings long-term potential, even though there is little visibility

Nexstim has not previously given any indication of pursuing the Indian market, so the news came as a positive surprise to us. The license applies to diagnostic and therapeutic applications for NBS5, but not to the newest NBS6 system. The company has not yet taken a position on the distribution model in India, so the first deals may still require the signing of a distribution agreement. We believe the most likely customers for Nexstim in a populous country are university hospitals, which could use Nexstim’s system with high-end accuracy and pricing for both research and treatment use. A large country naturally has potential. On the other hand, the role of Australia, for example, has remained marginal for Nexstim, despite its great potential. Success outside the core markets of Europe and the US is thus by no means certain.

Sinaptica cooperation news strongly define the short-term progress of the investment story

This summer, Nexstim announced a letter of intent with Sinaptica Therapeutics concerning Alzheimer’s disease treatment. If the actual contract is signed, the first phase of the contract is worth 6 MEUR for Nexstim. The amount is based on Nexstim’s system development, the delivery of 20 systems to Sinaptica for a Phase III clinical trial, and other possible income such as a signing fee. We believe Sinaptica is currently undergoing a financing round, which probably needs to be successful before the contract can be finalized. In our forecasts, the contract is signed already this year, although the timetable may stretch to next year or may not be implemented at all.

Forecasts raised with the new market opening

We raise our medium- and long-term forecasts moderately based on a new and even surprising market opening. Our revenue forecast rises to 3% in 2026 and 5% thereafter . The growth  is also reflected in result lines, supported by a high gross margin. At this stage, our forecasts are relatively moderate, as the visibility of the Indian TMS market and Nexstim’s position there is fuzzy.

The price rise has weakened the risk/reward ratio

The share price has more than doubled compared to our H1 update, which has weakened the risk/reward ratio. The EV/S ratio of 3.7x for 2025 is highish and already includes assumptions about the Sinaptica contract being signed and the resulting significant revenue for Nexstim. Based on our DCF model the share value is around EUR 4. After the price rise, we feel the share is too highly valued in terms of growth and profitability potential and considering the uncertainties. The Sinaptica contract is likely to sway our estimates, valuation and stock price strongly in one direction or another over the next few months.