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Nexstim — Update 1 September 2016

Nexstim — Update 1 September 2016

Nexstim

Analyst avatar placeholder

Written by

Nexstim

Funding agreed; business retrenched

H1 results and update

Healthcare equipment
& services

1 September 2016

Price

€0.61

Market cap

€6m

Cash (€m) as at 30 June 2016

1.8m

Shares in issue

10.5m

Free float

69%

Codes

NXTMH, NXTMS

Primary exchange

Nasdaq First North Finland

Secondary exchange

Nasdaq First North Sweden

Share price performance

%

1m

3m

12m

Abs

(21.3)

(27.4)

(90.5)

Rel (local)

(21.6)

(30.4)

(91.0)

52-week high/low

€7.5

€0.6

Business description

Nexstim sells navigated brain stimulation to plan brain surgery; the system is sold in the US and EU. The therapeutic stimulation system may promote rehabilitation after stroke. Phase III data showed strong responses in both active and sham arms and an FDA de novo application is underway.

Next events

FDA initial response

By late September

FY16 results

March 2017

Analyst

John Savin PhD

+44 (0)20 3077 5735

Nexstim is a research client of Edison Investment Research Limited

Nexstim shareholders have agreed to the €12m funding package announced in July so management has cash until into early 2018. Cost savings of €2.3m per year have been initiated with cuts of €1.6m in the US as a distributor sales model is implemented. This gives lower margins but offers a flexible cost base. The strategy remains focused on the FDA de novo 510(k) application for stroke rehabilitation. The FDA will state by late September if it will review the application. This might give US sales from H217 but the process is uncertain. H1 sales were €0.9m, up 38% over H115.

Year
end

Revenue
(€m)

PBT*
(€m)

EPS*
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/14

2.21

(10.21)

(1.43)

0.0

N/A

N/A

12/15

2.53

(9.55)

(1.19)

0.0

N/A

N/A

12/16e

2.06

(8.32)

(0.91)

0.0

N/A

N/A

12/17e

2.56

(5.36)

(0.40)

0.0

N/A

N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. EPS is estimated after 2016 dilution only.

FDA de novo stroke application: News by late Sept

Nexstim has Phase III data plus additional occupational therapy on more than 138 patients (out of 199). Meaningful clinical improvements were seen in 66% of patients in both arms – better than historical norms. This has encouraged Nexstim to apply to the FDA for a de novo 510(k) for stoke rehabilitation. The FDA review, if accepted by late September, will probably take about nine to 12 months, but further trials and data may be needed. The outlook for stroke sales is not certain.

Funding agreed until early 2018

The AGM confirmed the convertible loan facility and standby equity drawdown arrangements with Bracknor Investment, a Dubai-based investment company. These could be worth €10m if fully used. The Finnish Innovation Fund (Sitra) has agreed to match this funding up to €1.5m. In addition, Sitra will make a Directed Issuance investment of €0.5m. There are warrants to Bracknor and Sitra.

H1 results

H1 saw revenues rise 38% to €0.9m from €0.6m. The previous 2016 revenue target of €3.1m set by Edison has been lowered to €2.1 as H2 sales will stall since no US salesforce now exists and distributors need to be appointed and trained. From 2017, the new distribution strategy produces lower margins; Edison expects distributor costs of 30-40%. Ongoing costs in H216 will be lower but there will probably be exceptional charges. Savings of €2.3m in 2017 are now included.

Valuation: Complex data need a cautious projection

Navigated Brain Stimulation (NBS) is sold for pre-surgical brain mapping in the US and EU, but the market is limited. The revised forecast (see below) implies a share price of €0.96/share (formerly €1.15) based on a revised indicative value of €17.2m after expected 2016 dilution. Nexstim could receive €2-3m of funding in 2016. Edison expects about €5m cash will be required in 2017.

Revised model post restructuring

Given the new strategy, the following adjustments have been made.

■

Sales of units in 2016 have been adjusted from 15 to seven at a full price of €200k each. Servicing is set at €400k and consumables sales at €230k. This gives just over €2m in revenues. The fall in units is because most sales were expected to be Q4 weighted and the US sales team has been laid off immediately. EU sales will follow a similar trajectory. Some sales will be being completed.

■

From 2017, distributors will take over. These need to be recruited and their staff need training on two complex systems aimed at very sophisticated clinical users. At best, these new arrangements cannot be operating fully until spring 2017. Hence, NBS sales in 2017 have been reduced to 15 units from 20. Sales in 2018 have been set at 20, down from 25. After that, the new strategy should be fully operative. Edison notes that all these forecasts are just reasonable assumptions and no management guidance is available.

■

Prices of NBS disposables have been reduced by 30% from 2017 to reflect distributor margins. The unit prices of NBS systems have been reduced by 40%. The difference is because the consumables need little sales support; the units need a lot of sales investment on sporadic and lengthy sales processes.

■

In 2016, US costs have been cut from the end of August, saving €670k. Costs in Finland have been cut from October, saving €175k. From 2017, costs have reduced by €2.3m as indicated by management.

■

Navigated Brain Therapy (NBT) sales, possibly for stroke therapy, are assumed from 2018. Note that the NBT value to Nextim is assumed, following management strategy set by the former CEO, to be lower than NBS at €80k per unit, €80 per consumable. These prices are designed to encourage uptake as a high consumable use rate is projected. These sales obviously depend on the FDA decision, although the system could be sold in theory in the EU now as it is CE marked. Prices received by Nexstim have been adjusted on the assumption that these systems will also be sold by distributors (40% lower for units and 30% lower for the consumable).

■

The future cost structure has been amended as a percentage of revenues so that, with no direct sales function:

•

R&D is 10% (unchanged, but lower in absolute terms due to reduced revenues);

•

admin is 15% of revenues (from 20%); and

•

marketing and technical support to distributors is 10% of revenues (formerly 15% of a higher revenue line).

■

Finnish corporation tax, when due, is 20% and there is no federal US tax on the US subsidiary.


Valuation

The effect of the price cut is to reduce the long-term cash flows from the business. The immediate cuts reduce the potential 2017 funding need to about €5m in Edison’s forecast. However, the shares and warrants due in 2016, now agreed by shareholders, will impose an immediate dilution. The reduced cost base offsets this, so the indicative price is €1.37 before the new dilution and is estimated at €0.96 after the likely 2016 dilution. This is dependent on gaining an FDA review, and the number of shares and warrants in issue at the end of 2017 is highly unpredictable.

The value of €0.96 compared to the previous indicative value of €1.15/share is shown in Exhibit 1. The funding arrangements were covered in detail in the July 2016 note, available online.

Exhibit 1: Indicative valuation compared to July 2016 using a 2016 dilution scenario

 

July 2016

August 2016

Shares

Value

Shares

Values

Equity value 2016 (€m)

 

28.6

22.2

Additional funding need 2017 (€m)

 

-8.0

-5.0

Overall value including further funding need (€m)

20.6

17.22

Shares in issue June 2016 (m)

8.1

8.1

New shares due to CBF and fees in 2016 (m)

5.2

5.3

Warrants on CBF 2016 (m)

3.1

3.1

Options (m) (inc 700k new options from May 2016)

1.5

1.5

Total shares, options and warrants

17.9

18.0

Diluted value at current share price (€)

 

1.15

0.96

Source: Edison Investment Research CBF is Convertible Bond Facility. There is also a Standby Equity drawdown Arrangement but this is not assumed to be used in 2016, see previous note.

Exhibit 2: Financial summary

€'000s

2014

2015

2016e

2017e

Year end 31 December

FAS

FAS

FAS

FAS

PROFIT & LOSS

Revenue

 

 

2,210

2,528

2,055

2,560

Cost of Sales

(638)

(821)

(683)

(1,162)

Gross Profit

1,572

1,707

1,372

1,398

EBITDA

 

 

(7,422)

(9,984)

(7,702)

(5,152)

Operating Profit (before GW and except)

 

(7,568)

(10,096)

(7,712)

(5,162)

Intangible Amortisation

(231)

(274)

(250)

(250)

Exceptionals

-

-

-

-

Operating Profit

(7,800)

(10,370)

(7,962)

(5,412)

Other

-

-

-

-

Net Interest

(2,646)

544

(610)

(200)

Profit Before Tax (norm)

 

 

(10,214)

(9,552)

(8,322)

(5,362)

Profit Before Tax (FRS 3)

 

 

(10,445)

(9,826)

(8,572)

(5,612)

Tax

-

(1)

-

-

Profit After Tax (norm)

(10,214)

(9,553)

(8,322)

(5,362)

Profit After Tax (FRS 3)

(10,445)

(9,827)

(8,572)

(5,612)

Average Number of Shares Outstanding (m)

7.1

8.0

9.2

13.4

EPS - normalised (c)

 

 

(143)

(119)

(91)

(40)

EPS - FRS 3

 

 

(1.46)

(1.23)

(0.93)

(0.42)

Dividend per share (c)

0.0

0.0

0.0

0.0

Gross Margin (%)

71.1

67.5

66.8

54.6

EBITDA Margin (%)

-335.8

-394.9

-374.9

-201.2

Operating Margin (before GW and except.) (%)

-342.4

-399.4

-375.4

-201.6

BALANCE SHEET

Fixed Assets

 

 

979

974

974

974

Intangible Assets

527

631

631

631

Tangible Assets

442

333

333

333

Other

10

10

10

10

Current Assets

 

 

13,014

8,233

2,660

2,164

Stocks

247

421

421

421

Debtors

930

659

360

611

Cash

11,484

6,875

1,602

849

Other

354

277

277

283

Current Liabilities

 

 

(1,928)

(2,417)

(2,516)

(2,732)

Creditors

(1,382)

(1,084)

(1,084)

(1,300)

Short term borrowings

(134)

(384)

(484)

(484)

Short term leases

0

0

0

0

Other

(412)

(948)

(948)

(948)

Long Term Liabilities

 

 

(3,475)

(3,245)

(3,145)

(8,045)

Long term borrowings

(3,405)

(3,197)

(3,097)

(7,997)

Long term leases

0

0

0

0

Other long term liabilities

(71)

(47)

(47)

(47)

Net Assets

 

 

8,590

3,545

(2,027)

(7,639)

CASH FLOW

Operating Cash Flow

 

 

(7,146)

(9,065)

(7,403)

(5,193)

Net Interest

(640)

(544)

(610)

(200)

Tax

0

0

0

0

Capex

(860)

(380)

(260)

(260)

Acquisitions/disposals

0

0

0

0

Financing

18,818

5,280

3,000

0

Dividends

0

0

0

0

Other

300

100

0

4,900

Net Cash Flow

10,473

(4,609)

(5,273)

(753)

Opening net debt/(cash)

 

 

2,529

(7,945)

(3,293)

1,980

HP finance leases initiated

-

-

-

-

Other

0

(43)

-

(4,900)

Closing net debt/(cash)

 

 

(7,945)

(3,293)

1,980

7,633

Source: Edison Investment Research, Nexstim accounts. Note: FAS = Finnish Accounting Standards. Average number of shares and EPS for 2016 and 2017 are estimates based on the share issue scenario in Exhibit 2. The amounts and timings of new issues are uncertain and represented in 2017 by illustrative debt of c €5m.

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt, Sydney and Wellington. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2016 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Nexstim and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided 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. Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2016. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

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Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt, Sydney and Wellington. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2016 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Nexstim and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided 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. Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2016. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Evolva Holding — Update 1 September 2016

Evolva Holding

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