Nordhealth AS - Finnish SaaS from Norway

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Let’s open a thread for this newly listed, interesting company.

Nordhealth AS [NORDH], listed on Norway’s Euronext Growth this week, is a Finnish-born company focused on cloud-based healthcare, grown through acquisitions and organically. Its business is to modernize clients’ legacy systems with its own SaaS-based products. The company offers various patient information systems for veterinarians and therapists from different fields, and according to the company, its clients include IVC Evidensia, AniCura, Coronaria, and Fysios.

Revenue in 2020 was approximately 20 million euros, and at the end of Q1/21, annual recurring revenue (ARR) was approximately 21.4 million euros. According to management’s forecast, ARR is expected to grow to 23-25 million euros by the end of 2021. As far as I understand, about 85% of the revenue is recurring. Calculated with pro-forma figures, revenue has grown 15-17% annually in the 2018-2020 period. Gross margin appears to be over 80% in the same period.

The funds raised from the IPO are intended to be used to accelerate growth through acquisitions and product development. The company was listed last week with a market capitalization of 320 million euros, which can be considered relatively high based on the 15 P/S ratio derived from the last fiscal year, but reasonable if management’s forecasts (>110M ARR in the next 4-5 years) are realized.

Company presentation from the company’s website: https://nordhealth.com/assets/attachments/nordhealth-as-group-presentation.pdf

I believe the company has potential, but global expansion, especially with a focus on acquisitions, increases the risk profile. I do not have information about the quality of the company’s products, but a 119% average net retention rate certainly tells something.

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Interesting company and interesting industry :+1:

Some comments:

  1. About 95% of revenue came from the Nordic countries in 2020. This was before the Aspit acquisition, so even more after this acquisition. At the same time, the company’s market share in Finland, Sweden, and Norway in the veterinary sector is already 80-95%. In Denmark, it’s about 30%. While the market is growing, this means it’s difficult to maintain historical organic growth rates because, simply put, there aren’t as many potential clinics in the Nordics that can be added as customers. Of course, high net retention will likely ensure 15-20% YoY growth even without new customers, plus perhaps another 5% from new clinics. If we compare this to Carasent (not a direct competitor, but healthcare SaaS), the net retention is roughly the same, but in Cara’s case, new clinics should provide an additional 20-30% growth YoY.
  2. Therefore, to even get close to historical organic growth, they would need to succeed really well in the US. This is certainly possible. Firstly, IDEXX recently acquired ezyVet, and secondly, Pathway acquired Vetspire, and both deals are likely to benefit Nordhealth in the long run. Why? IDEXX and Pathway are large organizations, and neither of the acquired companies will receive the same focus they did as private entities. While resources might increase, I’d say the bureaucratic disadvantage is greater. These acquisitions improve Nordhealth’s chances. And there aren’t really any other true competitors.
  3. Acquisitions. Will future growth rely too heavily on acquisitions? They recently paid 400 million for Aspit, which is about 6x revenue. Doesn’t sound cheap. Cara reportedly dropped out of the bidding at 200 million. The higher the multiples, the greater the risk that acquisitions won’t achieve the targeted returns.

Biggest pros:

  1. High net retention, like Cara. Indicates that there are generally many cross-selling opportunities in the industry.
  2. The industry is growing. Strong position in the Nordic countries. Limited competition.
  3. Expansion into more markets in the veterinary sector is much easier than for Cara due to regulation.
  4. From my understanding, management seems competent. A clear strategy of acquiring legacy systems, converting them to SaaS, and increasing average customer billing by selling additional modules/services.
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