Research Update

Equity Research 04 03 2022

Careium
Sector: Health Care

Short-term Pain FAIR VALUE RANGE

BEAR BASE BULL

Redeye takes a slightly more conservative stance on Careium after the first report as a
22 30 42
standalone company. We still believe the company is well positioned for future growth
but think it will take longer than expected with lower profitability in the meantime. We
reduce our base case from SEK 36 to SEK 30 per share. CARE VERSUS OMXSPI
Strong sales and weak margins

Total revenue in Q4 was SEK 162m, 12% Y/Y. This was above our estimates of SEK OMXSPI Careium

145m. The reason for the deviation is several new agreements implemented in the 40
35
Nordic region. The total adjusted EBIT was SEK 1m, corresponding to an EBIT margin 30
of 0.6% (4.4% last year). This was below our estimates of SEK 7m. The reason is a mix 25
20
of higher component costs and staff costs. 15
10
Struggles in the UK 5
0
The main negative event in the quarter was the announced re-structuring in the UK. We 13-dec

have been waiting for the UK to take-off for Careium due to the potential for increased
digitalization but hadn’t expected the need for a re-structuring. We think this creates
some doubts around the viability of the M&A strategy for Careium. Our understanding REDEYE RATING
is that there has been a lack of management control in the UK that has led to that the
profits the operations showed when Careium bought them has largely evaporated. 3
4
3
Lowered estimates and valuation

While we think Careium is well positioned for future growth we have been too People Business Financials
optimistic on the timing as well as the profitability. We bring down our margin
estimates for the next three years. The market has been ruthless, having punished the
stock severely with a drawdown of almost 50% since the spin-off, which we think is an
KEY STATS
overreaction. We reduce our Base Case fair value from SEK 36 to SEK 30 per share,
our bear case from SEK 27 to SEK 22 and our bull case from SEK 47 to SEK 42. Ticker CARE
Market First North
Share Price (SEK) 17.5
Market Cap (SEKm) 434
Key Financials (SEKm) 2020 2021 2022E 2023E 2024E
Revenues 524 587 658 737 825 Net Debt (SEKm) 150
Revenue growth 84% 12% 12% 12% 12% Free Float (%) 88%
EBITDA 24 65 29 49 68 Avg. daily volume ('000) N/A
EBIT 24 8 12 27 39

EBIT Margin (%) 5% 1% 2% 4% 5%

Net Income 15 5 9 21 29

EV/Revenue 0,6 1,5 0,7 0,6 0,6

EV/EBITDA 11,9 13,4 15,2 9,2 6,8

EV/EBIT 11,9 102,3 36,7 17,0 11,8

Important information: All information regarding limitation of liability and potential conflicts of interest can be found at the end of the report
Redeye, Mäster Samuelsgatan 42, 10tr, Box 7141, 103 87 Stockholm. Tel. +46 8-545 013 30, E-post: info@redeye.se
REDEYE Equity Research Careium 04 03 2022

Short-term Pain

Q4: Strong sales and weak margins

Total revenue in the fourth quarter was SEK 162m, a 12% increase year on year, above our
estimates of SEK 145m. The reason for the deviation is several new agreements implemented
in the Nordic region. The total adjusted EBIT was SEK 1m, corresponding to an EBIT margin of
0.6% (4.4% last year), below our estimates of SEK 7m. The reason is a mix of higher
component costs and staff costs. The re-structuring in the UK decreased EBIT by around SEK
8.5m, but the company also had a positive one-off effect from an adjustment to the purchase
price of Victrix.

Careium - Expected vs Outcome

SEKm Q4'20 Q4'21E Outcome Diff
Net sales 145 145 162 12%
Gross profit 57 61 66 4
Gross Margin 40% 43% 41% -2%
EBITDA 6 7 17 10
EBITDA Margin 4% 5% 10% 5%
EBIT 6 7 1 -6
EBIT Margin 4% 5% 1% -4%
Profit before tax 6 7 2 -5
Source: Redeye Research

Services vs product sales

Services sales came in at SEK 126.8m while product sales landed at SEK 35.5m. Strong
development in Sweden drove the increase with several new contracts implemented during
the quarter. The figure would have been even stronger were it not for the weak development in
the UK. Innocom in the Netherlands, which Careium bought in September 2021, and the
strong development in Sweden drove a meaningful ARPU increase, from SEK 95/month to
SEK 108/month. Careium had 390 000 customers by the end of the fourth quarter, the same
level as at the end of the third quarter.

Sales of products improved mainly due to strong sales of the welfare hub Eliza in Norway.
Careium’s sales of hardware products is tightly connected to the sales of services, and in this
case, existing customers chose to upgrade to the Eliza. This type of upselling is an essential
strategy for Careium.

Struggles in the UK

The main negative event in the quarter was the announced restructuring in the UK. We have
been waiting for the UK to take-off for Careium due to the potential for increased digitalization
(the connections in the UK are analog today meaning it’s not possible for Careium to sell
higher value-add services) but hadn’t expected the need for large changes at this point. We
think this creates some doubts about the M&A strategy for Careium. Our understanding is that
there has been a lack of management control in the UK, which has led to that the profits that
the operations showed when Careium bought them has largely evaporated. The management
is now fully focused on improving the situation and are hiring new personnel in the UK to
rectify it. It's important to note that the UK market has not deteriorated, so the reason instead
has been a lack of focus inside the company. We think the aim ahead will be on strengthening
the organization and that the M&A activity in the UK will be muted until the situation improves.

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REDEYE Equity Research Careium 04 03 2022

As we discussed in our initiation coverage on Careium, the UK makes up around SEK 225
million or slightly below 40% of total sales of the company, Sweden & Norway around 50%,
while the rest is in the Netherlands and the rest of Europe (solely hardware). In terms of
number of connections UK stands for more than 50% but where the average revenue per
customer (ARPC) is around SEK 1 200, compared to around SEK 2000 in the other markets.
According to the management team of Careium, it’s not necessary for the ARPC to go up in
the UK for the region to be profitable and the goal in the near term is to improve efficiency.
The coming digitalization should then take the ARPC up to a similar level as in the other
markets.

Weak margins

Pressured margins for Careium are not news. The margins have been pressured since the
second quarter of 2019 and hit negative numbers both in Q3 and Q4. In 2019 the company
had EBIT margins of close to 10 %, in 2020 5.4%, and 1% in 2021. While we think some of the
reasons are temporary, we were a bit discouraged by the fact that Careium seems to have
taken a significantly higher share of the expenses than Doro after the spin-off. Doro had SEK
13m in administrative expenses in the fourth quarter against SEK 311m in sales (4.2% of
sales), while Careium had SEK 39m (24% of sales). If we adjust for the one-off costs in the UK,
it’s still above 30m or 18.5% of sales. Doro flagged that it will need to hire administrative staff,
leading to somewhat higher administrative expenses, but it’s still clear that Careium has a
higher cost base than Doro. We note that EBIT would have been a negative SEK 10m were it
not for an adjustment of the additional purchase price for Victrix that has delivered below
plan. Our view is that the operations in Sweden, Norway and Netherlands have good
profitability but where UK is currenty loss-making.

Focus on improved cash flow

Improving the cash flow is another area Careium is working on. Free-cash flow before M&A
was a negative SEK 70.9m in 2021. The largest reason was the working capital that increased
by SEK 80.1m. We do expect working capital to increase when sales increase partly due to a
higher inventory but primarily due to the terms in the service agreements where Careium
takes a lot of costs before getting paid. SEK 80.1m is, however, way too much, and when we
talked with the management of Careium we note that a large part of it is due to the situation in
the UK, where the company has not been strict enough in getting its invoices paid on time but
also due to that the focus for Careium the last months have been on the spin-off. Ahead, we
think Careium will benefit from better cash flows, especially in the short-term when the
adverse situation reverses.

Challenges in the service delivery in Sweden

The media has reported about problems in the service delivery for elderly care during the start
of 2022. Careium is one of the companies mentioned, but the recent issues are not company-
specific according to our sources. Instead, it has to do with the network providers, in this case,
Tele2, which Careium uses in certain regions. Our research shows that the municipalities have
chosen a cheaper alternative with lower redundancy. The customers can use an operator with
higher redundancy such as what the police uses and have back-up solutions through the
internet, but the customers typically choose the cheapest option. It’s crucial to grasp this as
reputation is critical when responsible for lives, and Careium’s key competitor Tunstall was
earlier ousted from the Swedish framework agreement. The difference, in that case, was that
the problems were company-specific and not related to network issues that have been
experienced this time. We are therefore not worried about Careium’s long-term position in
Sweden.

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REDEYE Equity Research Careium 04 03 2022

Financial Estimates
In our initiation piece published in the end of November 2021 we mentioned the following
expectations until 2024

• Organic growth of 3-5% per year.

• Acquired growth of 5-10% per year.
• Total yearly growth of 12%.
• Gross margins growing from 40% to 44%.
• EBIT margins growing from around 2% to 7%.

We stick with the sales estimates of around 12% per year but lower our gross margin
assumptions from 44% to 43% and lower our EBIT margin assumptions from 7% to slightly
below 5% in 2024. We think the cash flows will be stronger than the operating profit during the
same period due to the starting position with a higher than necessary working capital
position.

Forecasts - Hardware
SEKm 2020 2021 2022E 2023E 2024E
Net sales 105,4 122,7 137,4 153,9 172,4
Growth -12% 16% 12% 12% 12%
Gross margin 50% 48% 49% 49,5% 50,0%
Gross profit 52,7 59,1 67,3 76,2 86,2
Source: Redeye Research

Forecasts - Subscription services

SEKm 2020 2021E 2022E 2023E 2024E
Net Sales 419 464,7 520,5 582,9 652,9
Growth 6% 11% 12% 12% 12%
Gross margin 39% 39% 39% 40% 41%
Gross profit 164,6 181,2 203,0 233,2 269,0
Source: Redeye Research

Forecasts - Total Sales

SEKm 2020 2021E 2022E 2023E 2024E
Net Sales 524,0 587,4 657,9 736,8 825,3
Growth 6% 12% 12% 12% 12%
Gross margin 41% 41% 41% 42% 43%
Gross profit 217,3 240,3 270,3 309,4 355,2
Opex 188,9 231,7 258,3 282,4 316,2
Operating margin 5,4% 1,5% 1,8% 3,7% 4,7%
Operating profit 28,4 8,6 12,0 27,0 39,0
Source: Redeye Research

Our quarterly sales estimates for 2022 follows:

Regional Revenues Q1 Q2 Q3 Q4 2022E 2023E 2024E
Subscriptions 125 129 125 139 520 583 653
Y/Y Grow th (%) 12,0% 12,0% 12,0% 10,0% 12,0% 12,0% 12,0%
Hardware 30 35 32 39 137 154 172
Y/Y Grow th (%) 12,0% 12,0% 10,0% 10,0% 12,0% 12,0% 12,0%
Total Revenues 155 164 157 179 658 737 825
Y/Y Grow th (%) 12,0% 12,0% 11,6% 10,0% 12,0% 12,0% 12,0%
Source: Redeye Research

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REDEYE Equity Research
Valuation summary
Due to the reductions in our margin estimates in the short-term as well as a bit more cautious view on long-term
estimates we are reducing our fair value range accordingly.
Bear Case SEK 22 (27)
In our bear case we are pessimistic
on the margins as we see a risk for
a failure in the roll-out of digital
solutions. We are estimating steady-
state margins of 7%. We are also
pessimistic on the long-term sales
trajectory which is partly due to a
worse sales mix with lower value
products.
Careium 04 03 2022
Base Case SEK 30 (36) Bull Case SEK 42 (47)
All our scenarios use a 15-year In our bull case we are more
estimate period due to the high optimistic on the margins where we
switching costs and the inherent think Careium has the potential to
stability in the business. We use a increase the share of digital content
WACC of 8.8% in all scenarios, even more. We are estimating
which is calculated through our steady-state margins of 10%. We
rating model. We are estimating a are also more optimistic on the
return to stable margins of around long-term sales trajectory which is
8% in the long term which are higher partly due to a better sales mix with
than today, but that can be higher value products.
explained by the last years being
unique due to pandemic pressures
and that the company should be
able to increase the share of higher
value digital solutions in the future.
The growth of 9% during the next
five years will be both organically
and through M&A.
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REDEYE Equity Research Careium 04 03 2022

Catalysts
Geographic expansion

The Care acquisitions are Careium's chance to build scale at a faster space. Through its larger scale, Careium can
leverage its research and development efforts and current hardware suite. Careiums foreign care expansion will
lead to margin and multiple expansion. Careium has important M&A expertise from several acquisitions.
IMPACT
Downside Upside Time Frame
Significance Likelihood Significance Likelihood
Negligible Unlikely Moderate Highly likely Mid

Margin expansion

The gradual margin expansion through improved cost efficiency and higher value per unit (ARPU) should attract
investors.
IMPACT
Downside Upside Time Frame
Significance Likelihood Significance Likelihood
Moderate Unlikely Moderate Likely Mid

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REDEYE Equity Research Careium 04 03 2022

Summary Redeye Rating

The rating consists of three valuation keys, each constituting an overall assessment of several factors that are
rated on a scale of 0 to 1 points. The maximum score for a valuation key is 5 points.

Rating changes in the report: No changes

People: 3

The CEO has been at the helm for the last three years while the rest of the management team is newer, creating some uncertainty.
That is partly offset by experience in the Board. Accendo is an active owner that has had a position on the board for a while. Rite
Ventures also owns a corner. The ownership interest in the Board has improved and we think that was important in getting the
spin-off done to realize shareholder value. The spin-off creates some uncertainty around the ownership structure. The
management's share positions are too small, which has been the case for many years. We would especially prefer if the CEO had
a larger stake.

Business: 4

Careium is capturing market share through acquisitions where its focused efforts can provide good growth prospects within
telecare and digital/mobile health over the upcoming years. The business is dependent on additional acquisitions for growth but
has a high degree of customer lock-in enabling stable recurring service revenue. Careium has had difficulties in growing
organically in the past due to the large switching costs and also doesn't prosper from pricing power as the prices are mainly
regulated.

Financials: 3

Careium has recurring cash flows and a financial situation that is solid with a strong interest coverage ratio and a healthy
debt/equity ratio. 2020 and 2021 have been slower than historically driven by the pandemic which weighs on the financials.

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REDEYE Equity Research Careium 04 03 2022

2021 2022E 2023E 2024E DCF Valuation Metrics Sum FCF (SEKm)
INCOME STATEMENT Initial Period (2022–2024) 90
Revenues 587 658 737 825 Momentum Period (2025–2034) 312
Cost of Revenues 347 385 427 470 Stable Period (2035–) 487
Gross Profit 240 273 309 355 Firm Value 889
Operating Expenses 175 244 260 287 Net Debt 150
EBITDA 65 29 49 68 Equity Value 739
Depreciation & Amortization 57 17 23 29 Fair Value per Share 30,38
EBIT 8 12 27 39
Net Financial Items 1 0 0 0 2021 2022E 2023E 2024E
EBT 9 12 27 39 CAPITAL STRUCTURE
Income Tax Expenses 5 2 5 10 Equity Ratio 0,5 0,6 0,6 0,6
Non-Controlling Interest 0 0 0 0 Debt to equity 0,5 0,5 0,5 0,5
Net Income 5 9 21 29 Net Debt 136 12 28 37
Capital Employed 867 879 905 940
BALANCE SHEET Working Capital Turnover 8,5
Assets
Current assets GROWTH
Cash & Equivalents 143 266 251 242 Revenue Growth 12% 12% 12% 12%
Inventories 40 0 0 0 Basic EPS Growth -69% 108% 124% 37%
Accounts Receivable 214 0 0 0 Adjusted Basic EPS Growth -69% 108% 124% 37%
Other Current Assets 0 0 0 0
Total Current Assets 396 266 251 242 PROFITABILITY
ROE 1% 2% 4% 5%
Non-current assets ROCE 1% 1% 3% 4%
Property, Plant & Equipment, Net 96 96 96 96 ROIC 1% 1% 3% 4%
Goodwill 409 409 409 409 EBITDA Margin (%) 11% 4% 7% 8%
Intangible Assets 139 188 239 293 EBIT Margin (%) 1% 2% 4% 5%
Right-of-Use Assets 0 0 0 0 Net Income Margin (%) 1% 1% 3% 4%
Shares in Associates 0 0 0 0
Other Long-Term Assets 12 12 12 12
Total Non-Current Assets 656 705 756 809 VALUATION
Basic EPS 0,2 0,4 0,9 1,2
Total Assets 1052 971 1006 1051 Adjusted Basic EPS 0,2 0,4 0,9 1,2
P/E 159,4 44,6 19,9 14,5
Liabilities EV/Revenue 1,5 0,7 0,6 0,6
Current liabilities EV/EBITDA 13,4 15,2 9,2 6,8
Short-Term Debt 0 0 0 0 EV/EBIT 102,3 36,7 17,0 11,8
Short-Term Lease Liabilities 14 14 14 14 P/B 1,3 0,8 0,7 0,7
Accounts Payable 79 0 0 0
Other Current Liabilities 92 78 88 98
Total Current Liabilities 185 92 101 112 SHAREHOLDER STRUCTURE CAPITAL % VOTES %
Accendo Capital 15,4% 15,4%
Non-current liabilities Nordea Fonder 11,5% 11,5%
Long-Term Debt 279 279 279 279 Rite Ventures 10,2% 10,2%
Long-Term Lease Liabilities 0 0 0 0 Lazard Freres Gestion 6,8% 6,8%
Other Long-Term Liabilities 37 39 44 50 Avanza Pension 4,8% 4,8%
Total Non-current Liabilities 316 318 323 328
SHARE INFORMATION
Non-Controlling Interest 0 0 0 0 Reuters code CARE.ST
Shareholder's Equity 552 561 582 611 List First North
Total Liabilities & Equity 1052 971 1006 1051 Share price 17.5
Total shares, million 24.3
CASH FLOW
NOPAT 4 9 20 29
Change in Working Capital 332 161 9 11 MANAGEMENT & BOARD
Operating Cash Flow -20 190 58 74 CEO Carl-Johan Zetterberg Boudrie
CFO Mathias Carlsson
Capital Expenditures 0 0 0 0 Chairman Lennart Jacobsen
Investment in Intangible Assets 0 -66 -74 -83
Investing Cash Flow -164 -66 -74 -83
ANALYSTS Redeye AB
Financing Cash Flow 294 0 0 0 Niklas Sävås Mäster Samuelsgatan 42, 10tr
Free Cash Flow -20 124 -16 -9 Fredrik Nilsson 111 57 Stockholm

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REDEYE Equity Research Careium 04 03 2022

Redeye Rating and Background Definitions

Company Quality

Company Quality is based on a set of quality checks across three categories; PEOPLE, BUSINESS, FINANCE. These
are the building blocks that enable a company to deliver sustained operational outperformance and attractive long-
term earnings growth.

Each category is grouped into multiple sub-categories assessed by five checks. These are based on widely
accepted and tested investment criteria and used by demonstrably successful investors and investment firms.
Each sub-category may also include a complementary check that provides additional information to assist with
investment decision-making.

If a check is successful, it is assigned a score of one point; the total successful checks are added to give a score for
each sub-category. The overall score for a category is the average of all sub-category scores, based on a scale that
ranges from 0 to 5 rounded up to the nearest whole number. The overall score for each category is then used to
generate the size of the bar in the Company Quality graphic.

People

At the end of the day, people drive profits. Not numbers. Understanding the motivations of people behind a business
is a significant part of understanding the long-term drive of the company. It all comes down to doing business with
people you trust, or at least avoiding dealing with people of questionable character.
The People rating is based on quantitative scores in seven categories:
• Passion, Execution, Capital Allocation, Communication, Compensation, Ownership, and Board.

Business

If you don't understand the competitive environment and don't have a clear sense of how the business will engage
customers, create value and consistently deliver that value at a profit, you won't succeed as an investor. Knowing
the business model inside out will provide you some level of certainty and reduce the risk when you buy a stock.
The Business rating is based on quantitative scores grouped into five sub-categories:
• Business Scalability, Market Structure, Value Proposition, Economic Moat, and Operational Risks.

Financials

Investing is part art, part science. Financial ratios make up most of the science. Ratios are used to evaluate the
financial soundness of a business. Also, these ratios are key factors that will impact a company's financial
performance and valuation. However, you only need a few to determine whether a company is financially strong or
weak.
The Financial rating is based on quantitative scores that are grouped into five separate categories:
• Earnings Power, Profit Margin, Growth Rate, Financial Health, and Earnings Quality.

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REDEYE Equity Research Careium 04 03 2022

Redeye Equity Research team

Management
Danesh Zare
danesh.zare@redeye.se
Björn Fahlén
bjorn.fahlen@redeye.se Fredrik Reuterhäll
fredrik.reuterhall@redeye.se
Tomas Otterbeck
tomas.otterbeck@redeye.se Life Science Team
Gergana Almquist
Technology Team gergana.almquist@redeye.se
Hjalmar Ahlberg
hjalmar.ahlberg@redeye.se Oscar Bergman
oscar.bergman@redeye.se
Henrik Alveskog
henrik.alveskog@redeye.se Christian Binder
christian.binder@redeye.se
Alexander Flening
alexander.flening@redeye.se Filip Einarsson
filip.einarsson@redeye.se
Douglas Forsling
douglas.forsling@redeye.se Mats Hyttinge
mats.hyttinge@redeye.se
Forbes Goldman
forbes.goldman@redeye.se Ethel Luvall
ethel.luvall@redeye.se
Jessica Grünewald
jessica.grunewald@redeye.se Gustaf Meyer
gustaf.meyer@redeye.se
Jesper Henriksson
jesper.henriksson@redeye.se Erik Nordström
erik.nordstrom@redeye.se
Anton Hoof
anton.hoof@redeye.se Richard Ramanius
richard.ramanius@redeye.se
Rasmus Jacobsson
rasmus.jacobsson@redeye.se Kevin Sule
kevin.sule@redeye.se
Viktor Lindström
viktor.lindström@redeye.se Fredrik Thor
fredrik.thor@redeye.se
Fredrik Nilsson
fredrik.nilsson@redeye.se Johan Unnerus
johan.unnerus@redeye.se
Mark Siöstedt
mark.siostedt@redeye.se

Jacob Svensson
jacob.svensson@redeye.se

Niklas Sävås
niklas.savas@redeye.se

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REDEYE Equity Research Careium 04 03 2022

Disclaimer
Important information
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Redeye Rating (2022-03-03)

Rating People Business Financials

5p 32 15 4

3p - 4p 141 126 43

0p - 2p 5 37 131

Company N 178 178 178

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CONFLICT OF INTERESTS
Niklas Sävås owns shares in the company : No
Fredrik Nilsson owns shares in the company : No
Redeye performs/have performed services for the Company and receives/have
received compensation from the Company in connection with this.

11