Arseus reported 1Q13 numbers below expectations with a weak organic growth. We maintain our TP of € 20, suggesting a Hold rating.
Our View:
1Q13 sales grew by 1.7% (both overall and organic) to € 133m, while we expected € 140m with 6% organic growth (CSS € 139m, 4.6% org growth).
The company argues that the lower growth number results from the divestment of low margin products and project worth € 4m (of which € 3m in Fagron). On the positive side, the gross margin increased in 1Q13 by 2.5% compared to 1Q12 (for FY12, the gross margin already increased by 1%, mainly due to improvements which materialized in 2H12). Negative growth in Healthcare Solution (HSOL) and Specialities (HSPEC) are said to be impacted by uncertainties in the reimbursement of Dental charges.
Divisional results
Fagron: +4.3% to € 71.6m versus CSS at € 74.1m (+7%). € 3m of lower margin business was divested but it seems that the acquired 2012 businesses have contributed less than forecasted. We recall that Fagron had a very strong 4Q12 result recording an all time high growth of 11.1%. Corilus: +14.5% to € 10.2m versus CSS at € 9.7m (+8%).
HSOL: -2.5% to € 28.8m versus CSS at € 31.2m (+5.8%) and KBCSe at € 30.7m. The poor dental distributions affected strong distributions at other medical office workers. HSPEC: -5.4% to € 22.6m versus CSS at € 23.5m (-1.7%). The decline is more than expected and seems to accelerate the trends noticed in 2012.
Conclusion:
The numbers came in lower than expected, and especially the HSOL and HSPEC activities underperform. We believe the modest results in Fagron (compared to last year’s growth) are also related to the very strong 4Q12 result and do not lower our believe in the unique investment proposition of this business.
Arseus’ share price has seen a very strong rally since we upped our rating to BUY early February. The share price has reached our target price andthe current results do not warrant an upward revision of our FY13 forecasts. We therefore re-rate to Hold (from Buy) and maintain our target price of € 20/sh.