London, UK, 28 April 2022

Ergomed (ERGO): Healthy fundamentals for 2022

Ergomed's FY21 results showed that adjusted EBITDA of £25.4m was ahead of our estimate of £24.0m and consensus of £23.4m. A strong order book (£239.7m, up 24.2% y-o-y), continued overall business growth and a rapidly improving balance sheet position Ergomed for another solid year of growth. Ergomed recently acquired ADAMAS Consulting Group, which we have now incorporated in our model. A UK-based quality assurance services provider, ADAMAS will diversify revenue sources (its offerings do not overlap with Ergomed's). According to management, the acquisition should be immediately accretive to earnings. We have raised our valuation to £777m or 1,577p/share (versus 1,536p/share previously).

We have increased our DCF-based valuation to £777m or 1,577p/share compared to £751m or 1,536p/share previously due to rolling the model forward, updating our estimates and including the acquisition of ADAMAS. Our valuation implies an EV/EBITDA multiple of 26.5x (FY22e). Ergomed trades at a premium on FY22e EV/EBITDA (consensus) of 20.4x vs the peer average of 13.9x. Our bull case scenario valuation stands at 2,011p/share and our bear case at 1,227p/share, both based on our different sets of DCF assumptions (long-term sales growth and profit margins; for details, see our Outlook report).  

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