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Investing.com -- UBS has initiated coverage of Elekta AB (ST:EKTAb) with a “sell” rating, pointing to a weakening outlook for the radiotherapy market and limited prospects for the company’s new platform.
The analysts set a 12-month price target of SEK34, about 30% below the September 2 closing price of SEK45.94.
Elekta , the world’s second-largest manufacturer of radiotherapy devices, has steadily lost market share to rival Varian over the past decade.
Management has positioned its new system, Evo, as a potential turning point. But UBS said, “we remain cautious … Evo is unlikely to move the dial in more than 50% of the global radiotherapy market, where its key USP of enabling adaptive radiotherapy will struggle to find widespread adoption.”
The brokerage pointed to slowing market growth in developed economies, driven by fewer new cancer cases, a declining share of patients receiving radiotherapy, and shorter treatment courses.
“Developed markets face mounting volume headwinds that lower device utilisation and slow turnover for manufacturers, while growth in emerging markets risks disruption from Chinese players,” UBS said.
UBS projects global radiotherapy market growth of 3% to 4% in the medium term, about half of Elekta’s 6% to 8% forecast.
The brokerage said consensus expectations are too high, adding, “Although sellside consensus implies market forecasts that are below the company’s guidance, we still believe they are too high.”
On valuation, UBS noted that Elekta trades at a significant premium to peers despite weaker free cash flow conversion.
“Optically cheap, actually expensive,” the brokerage said, concluding that the shares do not reflect the “deep structural risks” to the company’s operating model.
The next catalyst for investors will be the company’s second-quarter earnings on November 26, where UBS estimates operating profit could fall 6% short of consensus expectations.