Cegedim, finally a new start

The publisher of software for health insurers, doctors and pharmacists has experienced a chaotic stock market course, far removed from that of its competitor Pharmagest Interactive, which is flying from record to record. The stock is down 10% since the start of the year. But after many disappointments, a new phase seems to be opening for Cegedim. The health publisher closed its American adventure last year, which represented a recurring source of losses, and the dysfunctions encountered in the management of the health and provident plan of the insurance sector taken over in 2019 have been resolved. But while it could have given a glimpse of its full potential, in its new perimeter refocused on Europe, the arrival of the pandemic postponed until the second half of the year, and especially in 2021, its return to better fortune. The results of the first half were indeed impacted by the health crisis. Revenues fell 3.9% and 2.5% on an organic basis (excluding scope effect), to stand at 236.2 million euros, while gross operating profit was Decreased 15.9% to 38.2 million. The two branches of the group were not penalized in the same way. The Health Insurance, HR and e-services division saw its operating profitability drop significantly (by 4 points, to 2.6%) due to the temporary drop in volumes handled under so-called BPO contracts (outsourcing of payroll or other processes of clients) and the delay in the implementation of project contracts, while that of the branch dedicated to healthcare professionals increased by 0.5 point (to 4.1%) thanks to the sale of American activities, in deficit last year. Due to asset write-downs, the net result was a loss of 4.6 million euros.

Business rebound in the second half of the year

Group management, on the other hand, was relatively confident for the second half of the year, noting a rebound in activity in both divisions. It expects sales and current operating income “almost stable” for the full year compared to last year. Estimates that remain subject to the evolution of the pandemic. For 2021, the market consensus forecasts a slight increase in sales and profitability. The net profit could thus reach 15.9 million euros this year (excluding exceptional items) and 19.6 million euros in 2021, which brings out a Per of 18.3 times. A level that could be considered reasonable in light of past disappointments, but which is based on relatively conservative business forecasts, bearing in mind that the large long-term contracts signed last year and in 2018 and that the activity of teleconsultation (Maiia) launched in March will give full effect in the months and years to come. This level is also two times lower than that of Pharmagest Interactive. Admittedly, the latter is on a remarkable performance trajectory, but Cegedim is for its part in the recovery phase. Finally, in view of the need to reduce healthcare costs, and the increasing digitization of the healthcare sector, the group is operating in a buoyant market.

Our advice: Buy Cegedim at 24.5 euros with a first target price of 30 euros. The group is expected to regain market confidence as it publishes strong performance. Isin code: FR0000053506.

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