Elekta AB
Elekta is a medical device company engaged in the development, production and provision of services relating to radiotherapy and radiotherapy software, primarily for the treatment of cancers. The company operates in a global duopoly with Varian Medical Systems (VAR). Together these two companies control about 80% of the cancer treatment market.
The growth rate in the cancer therapy market looks attractive for the years ahead. In DM , cancer accounts for about 25% of the death rate, whereas in EM the same rate approaches just about 11%. Better nutrition availability (quality and quantity) in EMs is resulting in higher average live expectancy, and therefore, one can assume that the cancer rate will increase considerably in these regions, in line with DM.
In DM, about 60% of cancer patients are treated with radiology, whereas in EM less than 10% of people with cancer have access to radiation oncology machines. Elektra presently has a market share of about 45% in EM, and this historic exposure should help it to expand its EM business ahead of its direct competitors (VAR, SIE).
In recent quarters, Elekta has underperformed its peer-group. This underperformance is mainly due to concerns around lower EM growth and weakness in the US market; however, as the long-term secular growth trend is already well underway, these concerns are unwarranted. Conversely in fact, the current growth trend offers a compelling entry point for medium to long-term investors.
Strengths and weaknesses analysis / Fundamental analysis:
Strengths:
- Elekta operates in a very attractive secular growth market for cancer therapy. The company’s growth potential is in excess of 20% while the sector average (medical devices) is only about 13%,
- The company enjoys a leading industry position,
- It has the capacity to deliver stable low double-digit growth rates,
- A recent change to recurring invoicing should help drive operational leverage.
Weaknesses:
- Weaker economic growth in EM could jeopardise the company’s growth strategy,
- Weaker economic growth in DM could reduce health care coverage for long-term illnesses,
- Weaker economic growth in DM could put the company’s up-selling strategy at risk,
- Adverse FX movements, particularly in EM currencies, could endanger the company’s growth margins.
Company profile, investment opportunity and asset management integration:
| Metric | Rating |
| Operational risks: | Average |
| Expected growth: | Above average |
| Long term value creation: | Average |
| Positive competitive advantage: | Above average |
| Management excellence: | Average |
| Financial strength: | Above average |
| Investment orientation: | Group “Best-in-Class”: Healthcare, Emerging Market Exposure |
Price ranges:
| Buy: | Only forcustomers |
| Sell | Only forcustomers |
| Stop-loss: | Only forcustomers |
| Fair-value: | Only forcustomers |