Translation: Original published in Finnish on 3/4/2025 at 8:00 am EET.

Nexstim's share price has fallen sharply in recent days, and the risk/reward ratio has become attractive again. We therefore raise our recommendation to Accumulate (was Reduce) and reiterate our target price of EUR 9.0. The company recently published its financial statements, so there has not yet been any change in the outlook. Therefore, we leave our estimates unchanged in this update. We expect strong revenue growth in the first half of the year, supported by the Brainlab and Sinaptica agreements. Further potential will be created by the launch of the new NBS 6 combination system. On the uncertainty side, the Sinaptica agreement in particular involves many unknown factors that may have a strong impact on the outlook and forecasts for the company.

Growth expected in the coming year

Nexstim's guidance for 2025 is to increase revenue and improve EBIT. Achievement of the guidance seems certain in advance, with a growing installed system base bringing recurring revenue and a sales margin of 4 MEUR secured by the Brainlab agreement. At the end of the year, there was a backlog of 5 undelivered systems, which already provides some support for the start of the year (10 systems were delivered in the comparison period H1'24). There are no details on the marketing authorizations and launch of the NBS 6 diagnostics system. However, the launch should take place this year, and we expect the new combination system to support revenue for the rest of the year.

Result and cash flow to turn positive

We expect Nexstim to achieve a strong earnings turnaround and positive cash flow in the current year. The projected turnaround is based on profitable organic growth in system sales and recurring revenue, revenue and guaranteed coverage from the Brainlab agreement and significant revenue from the Sinaptica agreement. Of these, the first two are relatively well established and the latter is more uncertain. Nexstim signed a letter of intent with Sinaptica last summer for the treatment of Alzheimer's disease. The final agreement is likely to depend on the success of Sinaptica's financing round. If finalized, the deal is expected to bring Nexstim revenue of 6 MEUR over the next two years. Further potential will come from the commercialization of the system if the pivotal trials show sufficient efficacy of the treatment. Before that, however, time will be needed to apply for and process marketing authorizations and to launch the system, which typically takes time in the industry.

Nexstim's liquidity is in good shape thanks to a high level of cash and accounts receivable. The company still has net debt, but the overall balance sheet position is solid due to the earnings turnaround.

Valuation picture looks attractive again

With our strong growth projections for this year subject to some uncertainty, the EV/S ratio has fallen to 3.8x, at the lower end of our accepted range of 3-5x. We consider the multiple to be cautiously attractive given the forecast risk associated with the binary nature of the Sinaptica and Magnus Medical deals. These agreements represent a significant portion of Nexstim's projected cash flows. The DCF model also indicates upside potential. We do not yet use earnings multiples in our valuation as the sustainable earnings level is still unknown. In our view, the risk/reward ratio based on multiples is becoming attractive again after the decline in the share price.