Nexstim OYJ (NXTMH-FI): Current trading levels below the valuation floor

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Published to the market and investors on 10^th October 2018 @ 11.45am (London time).

Nexstim OYJ (NXTMH-FI): Current trading levels below the valuation floor
Recommendation: OUTPERFORM
Target Price: EUR0.28 (from Under Review)
Current Price: EUR0.05 (COB on 9^th October 2018)

KEY TAKEAWAY

Following the recent setback from the E-FIT trial causing shares to fall significantly, Nexstim has decided to exit stroke and instead to focus its capacities on its existing diagnostic and therapeutic business lines. As a result, we have lowered our target price. Considering current trading levels, we believe the shares represent an asymmetric risk profile. In our view, the diagnostics segment represents a solid valuation floor with limited downside risk and potential for market expansion. Given that both sales lines are cash generative and well-differentiated from the competition, and with only commercial execution risk and minimal regulatory risk, we maintain our OUTPERFORM recommendation, but adjust our target price to EUR0.28 (from EUR1.23).

Strong foothold of NBS for pre-surgical mapping of tumours

With stroke out of the picture, Nexstim can refocus its capacities on solidifying its existing foothold and further penetrating international markets. The NBS system allows mapping of functional areas of the brain prior to surgery to help identify tumour margins, thus facilitating optimal resection and increasing progression-free survival by c.46%. The system is both FDA-cleared and CE-marked for pre-surgical mapping, and to date over 150 systems have been sold to many world-renowned neurosurgical units globally.

Promising commercial outlook for the treatment of depression with NBT

To date, Nexstim's NBT system remains the only FDA approved personalised navigation approach for targeted TMS in depression, targeting an addressable market of c.6m treatment-resistant patients in the US and Europe alone. The indication holds promising commercial potential and adds a robust second revenue driver to the NBS business. With strong support from key opinion leaders ("KOLs") and an expanding US team the company should be able to increase sales rapidly going into 2019E.

E-FIT results not to be interpreted as evidence against NBT functionality

The fact that responses in both trial arms exceeded the literature-based response expectation of approximately 30% could indicate a patient selection bias of only including highly-motivated non-depressive stroke individuals and / or by the Hawthorne effect, where patients behave differently when they know they are being tested. This is important to highlight, as we believe the results provide evidence against the concept contralesional hemisphere inhibition rather than functionality of Nexstim's NBT system.

We adjust our target price to EUR0.28 (from EUR1.23) to account for stroke exit

We value Nexstim using a DCF approach using a WACC of 14%, which yields a fair value of EUR0.28 per share. We also conducted an EV/Sales analysis to determine the fair value of the diagnostics business, yielding an NPV of EUR7.0m and a valuation floor of EUR17.3m including EUR10.3m cash (June 2018). NBT represents additional upside, bringing the total equity value to EUR27.7m. We highlight to investors that the company is currently trading below cash levels. We reiterate and maintain our OUTPERFORM recommendation, but lower our target price to EUR0.28 (from EUR1.23).

Kind regards,

Martin Piehlmeier | Analyst

goetzpartners Healthcare Research Team | Research Team

goetzpartners securities Limited

The Stanley Building, 7 Pancras Square, London, N1C 4AG, England, UK.

T +44 (0) 203 859 7725 | martin.piehlmeier@goetzpartners.com / healthcareresearch@goetzpartners.com

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