Morningstar | Elekta Closes Year Strong; Unity Demand Healthy, Margin Improves
Elekta's story currently revolves around Unity, and the firm delivered on investor expectations in the fourth quarter with six new systems ordered. Strong demand for the platform gives us confidence in our long-term forecast for Elekta, and we maintain our fair value estimate and wide moat rating. With the shares jumping nearly 20% on May 29, we consider Elekta to be fairly valued, trading near our SEK 120 fair value estimate.Having been granted Food and Drug Administration approval for Unity late in the year, Elekta received its first orders in the U.S. in the quarter and saw overall gross order intake in the Americas region grow 9% sequentially. With 6 Unity orders in the quarter, the overall number now stands at 45, allowing the company to reaffirm its target of 75 orders by mid-2020. Order acceleration is highly contingent on clinical data coming out of centers with fully operational platforms, and the company suggested the experience so far is positive, with more than 190 patients completing treatment and more than 12 cancer types treated.
While the focus is on Unity, Elekta's other products saw solid performance in the quarter. Solutions (products and software) revenue was up 13% in the quarter, and services was up 9% (7% for the full year). A rebound in software in the U.S. (along with strong interest in the newly launched Mosaiq Plaza) was probably the most welcome sign for Elekta, although we note that the company ceded significant share in software over the past few years, making comparisons easier.
Healthy volume growth (and mix) resulted in a material 300-basis-point gross margin improvement in the quarter. While Elekta ramped up certain expenses ahead of the Unity rollout, it still delivered a 24% EBITA margin in the quarter, closing the year at 18.3% (below our original forecast but improved from last quarter). The company maintained its guidance for long-term revenue growth and margin, both in line with our forecast.
Elekta AB is a human care company providing clinical solutions for treating cancer and brain disorders. Co. develops tools and treatment planning systems for radiation therapy including brachytherapy and radiosurgery, as well as workflow improving software systems across the field of cancer care. Co. has four product areas: Elekta Neuroscience, which develops solutions for the diagnosis and treatment of neurological diseases; Elekta Oncology, which develops clinical solutions for radiation therapy, imaging systems and clinical solutions for patient positioning and immobilization; Elekta Brachytherapy, which is engaged in cancer treatment based on internal radiation; and Elekta Software.
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