Nexstim H1'25: Strong order book heading into next half of the year

Translation: Original published in Finnish on 8/18/2025 at 8:00 am EEST.

Nexstim's H1 was marked by strong revenue growth and improving profitability. Although the company missed our estimates, this was due to timing issues. The robust order book boosts confidence in our projections for the remainder of the year, which anticipate substantial growth. The valuation multiples are strong, setting the bar high for the coming years. The challenging valuation combined with low business visibility leaves the risk/reward ratio unsatisfactory in our view. We raise our recommendation to Reduce (was Sell) and our target price to EUR 12.5 (was EUR 10.5) based on the increased earnings estimates. 

Growth missed estimates partly due to revenue timing

Nexstim's revenue grew by +42% year-on-year, driven in particular by sales of diagnostics systems, amounting to 4.5 MEUR. Revenue included a 0.2 MEUR fee from Sinaptica and 0.12 MEUR in gross profit insurance from Brainlab. According to comments from management, Nexstim's own sales pipeline has also been boosted by the Brainlab agreement thanks to the increase in credibility. We estimate that systems were already delivered to Brainlab in H1, as sales through distributors were clearly more active than before, based on sales reports. Management's comments suggest that deliveries to Sinaptica also occurred in H1. The slight decline in recurring therapy revenue stalled growth. Although the figures fell short of our projections, some deals remained in the order book at the end of H1, including 8 systems. The healthy order backlog significantly mitigates the impact of the forecast miss.

Result still in the red

The operating result was a loss of 0.2 MEUR, which was also below our forecast (0.4 MEUR). As with revenue, the timing of orders partly explains the earnings miss. The gross margin was surprisingly high at around 80%, especially considering that a significant proportion of sales came through distributors, according to press releases. These should be lower-margin sales. The gross margin and result were partly supported by payments from Brainlab and Sinaptica. Operating expenses were slightly lower than expected, which had a positive impact on earnings. This was driven by a slightly smaller number of personnel and lower other operating expenses than we expected. The weakening of the USD in Q2 may partly explain the moderate development of costs. Cash flow from operating activities and investments was -0.6 MEUR and cash in hand was 2.7 MEUR (H2’24: 3.9 MEUR). The decrease in cash is explained by negative cash flow, loan repayments, and Brainlab's advance payment of 1 MEUR, which strengthened the cash position at the turn of the year. Considering its trade receivables (2.4 MEUR) and healthy order book, Nexstim's balance sheet is in fairly good shape, even though the company has net debt. 

Valuation sets the bar high for growth

In the big picture, our forecasts remain fairly unchanged, but we are raising our earnings forecast slightly based on the positive development of the gross margin. Business visibility is low due to Brainlab's sales development, Nexstim's own sales organization's pipeline, and the outlook for sales through the distributor network. Thus, there is a significant risk associated with realizing the forecasts.

We base our valuation on EV/S multiples and the DCF model, as the earnings level for the coming years is still on a rather uncertain footing. Nexstim's 2025e EV/S is 7x and decreases to 6x in 2026e, with our estimates that expect strong growth. In our opinion, the multiples require rapid growth to continue even beyond 2025-26, supported by the Brainlab and Sinaptica agreements. The share price is slightly elevated relative to its history and at a high multiple compared to listed peers. The DCF values the share at EUR 12.5. We consider the share to be overvalued when taking into account the uncertainty associated with the estimates and the binary risk associated with the agreements. Thus, we will wait for better opportunity to buy.