Zalaris — Another quarter of records

Zalaris (OSE: ZAL)

Last close As at 20/11/2024

NOK68.40

−0.40 (−0.58%)

Market capitalisation

NOK1,515m

More on this equity

Research: TMT

Zalaris — Another quarter of records

Zalaris delivered its 11th consecutive quarter of revenue growth in Q324, alongside record quarterly revenue and profitability. Contract momentum continues with both existing clients and new contracts, resulting in a net retention rate within Managed Services of 108%. Zalaris has made good progress towards its mid-term adjusted EBIT margin target of 12–15%, with a 17.9% margin in the Managed Services business boosting group margins to 10.9% (Q323: 8.5%). The enhanced profitability has been driven by the strategic improvements to operations in Germany and increased use of near-shore and offshore service locations to drive efficiencies. Our estimates are unchanged as we expect a strong final quarter with maintained margin progression and contract momentum. Management noted it is making progress in the strategic review announced in April, although no outcome has yet been reported.

Written by

Milo Bussell

Analyst, Consumer and TMT

TMT

Zalaris

Another quarter of records

Quarterly results

Software and comp services

25 October 2024

Price

NOK72.0

Market cap

NOK1,586m

Net debt (including lease liabilities) at 30 September 2024

NOK353.4m

Shares in issue

21.6m

Free float

65.6%

Code

ZAL

Primary exchange

Oslo Børs

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

1.7

(5.0)

71.4

Rel (local)

(0.5)

(4.5)

55.9

52-week high/low

NOK79.2

NOK37.4

Business description

Zalaris is a leading provider of comprehensive human capital management and payroll solutions. The company works with organisations globally to deliver solutions covering over 150 countries and the payroll and HR needs of over 1.5 million employees.

Next events

FY24 results

February 2025

Analysts

Milo Bussell

+44 (0)20 3077 5700

Dan Ridsdale

+44 (0)20 3077 5700

Zalaris is a research client of Edison Investment Research Limited

Zalaris delivered its 11th consecutive quarter of revenue growth in Q324, alongside record quarterly revenue and profitability. Contract momentum continues with both existing clients and new contracts, resulting in a net retention rate within Managed Services of 108%. Zalaris has made good progress towards its mid-term adjusted EBIT margin target of 12–15%, with a 17.9% margin in the Managed Services business boosting group margins to 10.9% (Q323: 8.5%). The enhanced profitability has been driven by the strategic improvements to operations in Germany and increased use of near-shore and offshore service locations to drive efficiencies. Our estimates are unchanged as we expect a strong final quarter with maintained margin progression and contract momentum. Management noted it is making progress in the strategic review announced in April, although no outcome has yet been reported.

Year end

Revenue (NOKm)

PBT*
(NOKm)

EPS*
(NOK)

DPS
(NOK)

P/E
(x)

Yield
(%)

12/22

892.7

6.1

0.07

0.50

N/A

0.7

12/23

1,131.2

21.5

1.49

0.00

48.3

N/A

12/24e

1,306.5

111.5

4.11

0.91

17.3

1.3

12/25e

1,435.3

141.5

5.27

1.11

13.7

1.5

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Eleventh consecutive quarter of revenue growth

Zalaris has delivered a consecutive quarter of record revenue at NOK339.7m (Q323: NOK277.5m), up 22.4% y-o-y. The net client retention in the Managed Services business remains strong at 108% as Zalaris continues to upsell to existing clients and win new contracts. Adjusted EBIT margin was 10.9% (Q323: 8.5%), driven by a strong margin in Managed Services and progress made against its Zalaris 4.0 strategy to improve German profitability and use more near-shore and offshore service locations. The improvement in profitability flowed through to strong free cash flow of NOK48.9m (Q323: NOK20.6m). However, due to fx movements, net debt before leases remained flat at NOK286.3m (Q224: NOK286.5m).

Estimates remain unchanged

We have left our numbers unchanged as we expect a strong Q424 to deliver on our FY24 revenue estimate of NOK1,306.5m and the ongoing margin improvements to deliver an adjusted EBIT margin of 11.3%. There are also several contracts that will go live in Q424 as Zalaris rolls out its contract backlog. Management remains confident in its FY26 target of NOK1,500m for revenue, with an adjusted EBIT margin range of 12–15%.

Valuation: DCF valuation shows substantial upside

Zalaris’s share price has performed well in the year to date, up 55%. Despite this, it continues to trade at substantial discounts to both its payroll software and IT services peers. Our discounted cash flow (DCF)-based valuation of NOK91.1 per share remains unchanged and represents significant upside to the current price.

Q324 and 9M24 results summary

Exhibit 1: Quarterly revenue and adjusted EBIT margin progression

Source: Zalaris

Momentum continued apace for Zalaris in Q324, with another consecutive quarter of record revenue and adjusted EBIT, showcasing the attractive financial profile of Zalaris’s contracts, typically long-term with a low churn rate. Group revenues grew 22% to NOK339.7m (Q323: NOK277.5m), with strong growth in Managed Services of 27% to NOK256.7m (Q323: NOK201.5m), offsetting a slight decline in Professional Services of 1.8% to NOK71.6m (Q323: NOK72.9m). Professional Services’ slowdown is mainly due to the completion of a large consultancy project in the UK. The Asia-Pacific (APAC) region continues to show strong year-on-year and sequential growth, with revenues of NOK13.5m (Q323: NOK4.4m).

Contract momentum is building in the Managed Services business, with an implementation project starting for two large German customers, renewed agreements with Tryg and Entercard, and extended services for SAS’s UK workforce and an unnamed low-cost airline. Zalaris signed a letter of intent and started implementing Peoplehub for a multinational oil and gas company based in the UK with 2,500 employees. Reflecting this strong momentum, net revenue retention was 108% and resulted in a record revenue achieved.

The Professional Services saw a reduction in revenue in the quarter due to the completion of a large consultancy project in the UK, as mentioned earlier. That said, Zalaris has maintained good momentum in new client wins, including a long-term application maintenance services agreement with the Max-Planck Institute in the DACH region.

The APAC region has sustained strong progress, growing revenues up to NOK13.5m from NOK10.8m in Q224 and NOK4.4m in Q323. Having won contracts with Yancoal, Engenco and Goulburn Valley Water, the APAC region delivered its first quarter of positive EBIT.

Looking at profitability, Zalaris achieved record quarterly adjusted EBIT in Q324 as it progresses towards its FY26 margin target of 12–15%. Adjusted EBIT grew to NOK37.0m (Q323: NOK23.7m), up 56.5% y-o-y. The company is shifting its cost base to lower-cost near-shore and offshore locations and away from onshore locations, while margin improvement initiatives in the Nordic countries and Germany are starting to bear fruit. Despite Zalaris growing the number of full-time members of staff by 55 people year-on-year, personnel costs, as a percentage of revenues, continue to fall at 48.6%, compared to 50.3% for the prior year. Managed Services grew adjusted EBIT by 54.8% to NOK45.4m (Q323: NOK29.3m), at a record margin of 17.9%. Profitability in Professional Services was lower by 26.2% y-o-y to NOK5.2m (Q323: NOK7.0m), driven by the lower revenue levels. Despite this, management is encouraged by the higher utilisation rate quarter-on-quarter and expects this positive trend to continue in Q424.

Operating cash flow improved significantly both year-on-year and quarter-on-quarter at NOK48.4m (Q323: NOK15.3m; Q224: NOK18.4m), driven by higher profitability and benefiting from a working capital inflow. Net debt (excluding leases) was broadly flat at NOK286.3m (Q224: NOK286.5m), as the increase in the cash position was offset by an increase in bank debt following adverse fx movements in Zalaris’s euro-denominated bond loan.

Exhibit 2: Q324 and 9M24 results summary

NOKm

Q323

9M23

Q324

9M24

Revenue

277.5

820.8

339.7

981.4

y-o-y growth (%)

22%

20%

Adjusted EBITDA

37.9

103.3

55.5

151.8

y-o-y growth (%)

46%

47%

Adjusted EBIT

23.7

62.4

37.0

100.3

y-o-y growth (%)

56%

61%

Operating cash flow

15.3

14.4

48.4

74.1

Investing cash flow

(4.2)

(13.7)

(9.4)

19.3

Financing cash flow

(3.7)

25.1

(21.0)

(46.4)

Net change in cash

7.4

25.9

18.1

47.0

Net debt

333.3

333.3

286.3

286.3

y-o-y growth (%)

(14)%

(14)%

Net debt/adjusted EBITDA (last 12 months) (x)

2.5

2.5

1.4

1.4

Source: Zalaris. Note: 9M24, the first nine months of 2024.

Exhibit 3: Financial summary

NOK'm

2021

2022

2023

2024e

2025e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

775.3

892.7

1,131.2

1,306.5

1,435.3

Costs

(673.3)

(786.6)

(968.6)

(1,084.4)

(1,176.9)

EBITDA

 

101.9

106.2

162.6

222.1

258.3

Normalised operating profit

 

39.8

46.2

95.8

145.7

169.5

Amortisation of acquired intangibles

11.5

11.9

13.7

0.0

0.0

Exceptionals

0.0

1.9

0.0

(7.9)

0.0

Share-based payments

5.7

8.7

11.6

17.6

17.6

Reported operating profit

22.6

23.7

70.5

136.0

151.9

Net Interest

(7.6)

(40.1)

(74.2)

(34.3)

(28.0)

JVS and associates (post tax)

0.0

0.0

0.0

0.0

0.0

Exceptionals

0.0

0.0

0.0

0.0

0.0

Profit Before Tax (norm)

 

32.2

6.1

21.5

111.5

141.5

Profit Before Tax (reported)

 

15.0

(16.4)

(3.7)

101.7

123.8

Reported tax

(2.2)

(6.3)

9.2

(22.4)

(27.2)

Profit After Tax (norm)

30.0

(0.2)

30.7

89.1

114.2

Profit After Tax (reported)

12.8

(22.7)

5.5

79.4

96.6

Minority interests

0.0

1.6

0.8

0.0

0.0

Discontinued operations

0.0

(16.0)

(8.4)

0.0

0.0

Net income (normalised)

30.0

1.4

31.6

89.1

114.2

Net income (reported)

12.8

(37.1)

(2.1)

79.4

96.6

Basic average number of shares outstanding (m)

21

22

21

22

22

EPS - normalised (NOK)

 

1.41

0.07

1.49

4.11

5.27

EPS - normalised fully diluted (NOK)

 

1.32

0.07

1.29

4.11

5.27

EPS - basic reported (NOK)

 

0.60

(1.72)

(0.10)

3.66

4.45

Dividend (NOK)

0.35

0.50

0.00

0.91

1.11

Revenue growth (%)

(-2.2)

15.2

26.7

15.5

9.9

EBITDA Margin (%)

13.2

11.9

14.4

17.0

18.0

Normalised Operating Margin (%)

5.1

5.2

8.5

11.2

11.8

BALANCE SHEET

Fixed Assets

 

394.6

438.6

469.9

427.3

422.5

Intangible Assets

308.0

315.0

327.6

294.7

291.0

Tangible Assets

59.6

81.5

80.0

70.2

69.1

Investments & other

27.0

42.2

62.3

62.3

62.3

Current Assets

 

432.0

467.1

641.6

795.0

914.4

Stocks

94.8

135.4

197.1

236.1

275.0

Debtors

141.4

191.7

262.7

300.5

330.1

Cash & cash equivalents

176.2

91.8

135.7

206.8

253.4

Other

19.6

48.2

46.1

51.6

56.0

Current Liabilities

 

(213.3)

(669.6)

(407.9)

(439.3)

(457.3)

Creditors

(84.7)

(149.2)

(220.7)

(252.1)

(270.1)

Tax and social security

(38.7)

(41.0)

(49.2)

(49.2)

(49.2)

Short term borrowings

(1.4)

(369.7)

(10.8)

(10.8)

(10.8)

Other

(88.6)

(109.8)

(127.3)

(127.3)

(127.3)

Long Term Liabilities

 

(404.3)

(72.6)

(500.6)

(500.6)

(500.6)

Long term borrowings

(374.3)

(43.2)

(468.5)

(468.6)

(468.6)

Other long term liabilities

(30.0)

(29.3)

(32.1)

(32.1)

(32.1)

Net Assets

 

209.0

163.6

203.0

282.3

378.9

Minority interests

0.0

(1.6)

(2.4)

(2.4)

(2.4)

Shareholders' equity

 

209.0

162.0

200.5

279.9

376.5

CASH FLOW

Op Cash Flow before WC and tax

43.0

(22.2)

(11.7)

120.4

134.9

Working capital

(18.6)

(33.2)

(43.1)

(38.1)

(30.3)

Exceptional & other

(6.2)

28.9

50.1

(7.9)

2.6

Net revenue deferred/(recognised)

19.7

41.3

74.7

26.1

14.4

Tax

(4.8)

(14.4)

(11.5)

(22.4)

(27.2)

Net operating cash flow

 

33.0

0.4

58.6

78.2

94.3

Capex

(20.6)

(27.8)

(33.9)

(22.0)

(20.0)

Acquisitions/disposals

(43.3)

(11.3)

0.0

0.0

0.0

Net interest

(11.9)

20.2

38.5

2.6

2.6

Equity financing

6.3

(17.8)

0.9

0.0

0.0

Dividends

(19.6)

(7.6)

0.0

0.0

0.0

Other

109.7

(38.7)

(20.7)

12.3

(30.4)

Net Cash Flow

53.5

(82.6)

43.3

71.1

46.6

Opening net debt/(cash) including leases

 

275.1

213.9

338.9

362.1

291.0

FX

(2.2)

(0.1)

(0.8)

0.0

0.0

Other non-cash movements

(112.6)

207.8

(19.4)

(142.2)

(93.1)

Closing net debt/(cash) including leases

 

213.9

338.9

362.1

291.0

244.4

Source: Zalaris accounts, Edison Investment Research

General disclaimer and copyright

This report has been commissioned by Zalaris and prepared and issued by Edison, in consideration of a fee payable by Zalaris. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2024 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

General disclaimer and copyright

This report has been commissioned by Zalaris and prepared and issued by Edison, in consideration of a fee payable by Zalaris. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2024 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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Research: Healthcare

Cereno Scientific — CMD highlights a ‘rare’ portfolio refocus

Cereno Scientific recently held a capital markets day (CMD), providing greater insight on its development pipeline and strategic objectives. The key takeaway was its decision to focus on the rare disease space across its three programmes, a move we believe was strategically driven to maximise potential clinical and commercial success, and to appeal to future partners. While lead asset CS1 is targeting pulmonary arterial hypertension (PAH), supported by Fluidda and CardioMEMS (pivotal studies expected in 2026), CS014, the second HDAC inhibitor in Cereno’s portfolio, will now be evaluated in idiopathic pulmonary fibrosis (IPF), another rare indication with a three- to five-year average survival and no curative treatments. Management also highlighted the potential for CS585, its preclinical-stage asset in rare indications such as antiphospholipid syndrome (APS), an autoimmune disorder. We update our estimates to reflect the new target indication for CS014 and increase our valuation to SEK14.3/share, from SEK13.9/share previously.

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