Term Paper
SHL Telemedicine Background
SHL Telemedicine was founded in 1987; it was a private company until 2000 and is a public company traded in the Swiss stock exchange since then. SHL is dedicated to telemedicine. For more than a quarter of a century, the company is providing home telemedicine services. SHL operates medical monitoring centers staffed by medical professionals to provide immediate and professional medical care when their users are at home. Their medical services are offer 24/7 to their patients. In 2014, Professor Arie Roth, M.D., a medical consultation for SHL Telemedicine was award the prestigious Melzer price for his innovated and valuable contributions to the telehealth and telecardiology industries.
The company monitors the user's health and wellbeing using innovative technology and by that reduces the need for emergency intervention and hospitalization. The company aim is to increase their users’ chances of survival if a heart attack strikes and to generally improve their quality of life following a medical event. SHL is a global company and provides its services in Israel and abroad. The uniqueness of SHL is their innovative technology; their technologists keep busy developing state-of-the-art ECG devices as well as additional “supporting” devices, platforms and software. Their end user systems are simple that they can be used by anyone, anywhere, at any time. SHL ECG devices record 12-lead hospital grade ECGs within seconds. One of their new developments is the world’s only full hospital-grade ECG device using a smart phone. Such devices allow their users to travel the world, using their smart phones to send their ECGs from distant business and holiday destinations to their physician, cardiologist or SHL telemedicine center for evaluation.
SHL Telemedicine is based in Tel Aviv, Israel, has extensively expanded to Germany and employs over 400 people. Currently, the company is investing and building relationships in the United States, with one officer running the United States division.
The industry that the company is part of is telemedicine industry in Israel and specifically home telemedicine and also sometimes called eHealth or Telehealth. Telemedicine is the transfer of medical data and information from one place to another using technology and electronic communication in order to receive an expert evaluation and advice. It is used for many types of data: EKG, blood tests, blood pressure checks, FHR, x-rays, and more. The main competitors in this industry of SHL are Natali, Monitor, Keshev lev.
SWOT Analysis
Strength
SHL Telemedicine is making a footprint on the global market. With the expansion to Germany, SHL has become a leader in the German telehealth industry. SHL uses modern technology that has become increasingly popular in the demand for telemedicine. SHL is also introducing its telemedicine technology, including smartheart™ to other countries such as the US with the goal to educate on the benefits of telemedicine and expand business.
Technology and R&D – SHL uses the most advanced technology possible to ensure the patient and call center have fast and accurate date when dealing with health issues.
A global company – SHL is present in Israel and Germany with currently working investments and business relationships in the United States.
Reputation- SHL is leading the telemedicine market in both Israel and Germany and employs over 400 workers. They are setting the pathway to a global industry.
Knowledge and Experience-SHL has been in the telehealth industry for 28 years and continues to gain experience and evolve with the ever changing advances
Medical assistant from distance- the ability to receive care and information regarding health from anywhere makes healthcare easy and attainable from anywhere. This saves the patient time and money eases the hassle of having to go to the doctor which is a benefit to relieving stress.
A large number of ICU ambulances
Weakness
SHL Telemedicine uses highly advanced technology to offer patients a new way of individual care. The international business aspect has faced many barriers with varying regulations from country to country. The momentum of the company’s goals need to proceed at a steady pace, otherwise they will fall behind in the global economy.
The medical regulation – very regulated and different in every country. Global regulations differ from border to border so, in order to comply legally takes time and money.
An Israeli company- SHL Telemedicine’s corporate office is in Tel Aviv, Israel. Though expanding, Israel companies don’t have a large business impact on a global basis.
Adoption to the new technology by the elderly population- new technology is not always user friendly. The elder population may seem intimidated by new advances with technological equipment and reluctant to try something new.
Opportunity Table 4: 2009 Med Technology Sales in EU
Because SHL Telemedicine has a highly sought out reputation, they feel confident that the product and concept will catch on to patients on a global basis. SHL Telemedicine is focused on international growth. They have investments in the United States and other countries to build relationships and in turn create confidence in their product including the smartheart™. SHL’s major contributor to future success relies mostly on their global expansion.
Global expansion- SHL has a clear focus on global expansion while taking the necessary steps by already successfully expanding to Germany and beginning to introduce their company, but investing and educating in the United States.
Growing life expectancy and elderly population- SHL teletechnology offers an innovated approach to monitoring health. Risks of having a heart attack or other unhealthy conditions will decrease with the use of this technology, enabling patients to seek care when need at the touch of their fingertips.
Rising cost of medical services- Driving to the hospital or doctor’s office can be a pain and inconvenience. This technology will reduce those occurrences thus saving time and money.
Growing market of wearable devices- wearable devices are slowly saturating the market. The Apple watch and other wearable devices are extremely popular. SHL Telemedicen can utilized this with sleek, advanced technological designs to ensure an sharp look all while sustaining a healthy and safer lifestyle.
Threat
Competitors will always remain a threat and keeping up with the pace on all the regulations is a full time task as it is. SHL Technologies needs to acquire excellent organizational skills to get tasks done on various scales.
Competitors- as competitors advance in their technology and business operations, SHL needs to stay on top so to prevent from falling behind. These competitors, or potential competitors come from a variety of markets, as well. The threat is not specific to technology providers.
New regulations- new regulations can change the course of business instantly. It is critical that SHL is aware of regulations and prepared for any change necessary to follow such regulations.
Growing market of wearable devices- SHL Telemedicine needs to stay ahead of the curve on comfort, style and reliability of wearable devices.
Competitors
As part of the selection of the rival companies, we searched the Mergent financial database and filtered the top 10 companies in the industry. Then, we selected the top four companies based on the revenue figure and growth in the net income figures and found the following four companies with similar growth patterns: Express Scripts, Suzuken, Benesse and Community Health Systems:
Moreover, each of the above companies also shared similar patterns of operating risk relating to healthcare regulations and other aspects. We believed that these were the best companies in retrieving data related to SHL Telemedicine.
Relative valuation
Now, as part of this project, in order to calculate the intrinsic value of the company, we will proceed with the relative valuation method under which the intrinsic value of SHL Telemedicine stock will be calculated using the ratio multiples of rival companies. Below are the three financial multiples, for each of the top four companies that can be used to ascertain the intrinsic value of SHL’s stock and also the corresponding charts:
i) Earnings per share: (Net Income- Preference Dividend)/ Number of outstanding shares
Express Script Holdings: 2008/759= $2.64
Suzken Co Ltd: 21486/99= 217.03 Yen= $1.75
Benesse Holdings Inc.: 20372/96= 212.20 Yen= $1.71
Community Health Systems Inc.= 92/113= $0.81
Average Industrial Multiple= (2.64+1.75+0.81+1.71)/4= 1.73
Referring to the above calculation, we notice that Express Scripts Holdings stands as a leader in the industry and scores high with EPS multiple at $2.64. On the other hand, while Suzken Ltd and Benesse Holdings shares almost similar EPS, Community Health Systems Inc. records lowest EPS of $0.81 amongst the per set.
ii) Cash Flow per share: Operating cash flow/ Number of outstanding shares
Express Script Holdings: 4549/759= $5.99
Suzken Co Ltd: -41054/99= -414.68 Yen= -$3.35
Benesse Holdings Inc.: 32295/96=336.40 Yen= $2.72
Community Health Systems Inc.: 1615/113= $14.29
Average Industrial Multiple= [(5.99 -3.35 + 14.29+ 2.72]/4 = 4.91
The outcome of cash flow per share was the most interesting to witness as the outcome was exactly opposite to EPS calculation. Here, Community Health Systems leads the peer set with Cash Flow per Share of $14.29, followed by Express Script with multiple of $5.99. On the other hand, Suzken Ltd. which had recorded a sustainable EPS, recorded a negative cash flow per share of -$3.35. What the causes of this difference is unknown.
iii) Revenue per share: Total Revenue/ Number of outstanding shares
Express Script Holdings: 100887/759= $132.92
Suzken Co Ltd: 1988137/99= 2001.38 Yen= $16.21
Community Health Systems Inc.: 18639/113= $164.95
Benesse Holdings Inc.: 466418/96= 4858.52 Yen= $39.35
Average Industrial Multiple= (132.92+ 16.21+164.95+ 39.35)/4= 88.35
Preferred valuation multiple
Although cash flow per share offers maximum advantage to the analysts as it is hard for the entities to manipulate the cash flows of the company, but here we will prefer to use EPS as SHL Telemedicine Ltd recorded negative operating cash flow during 2014, thus making it impossible to use for valuation purpose.
Intrinsic Valuation
As discussed in the previous section, in order to calculate the intrinsic value of SHL Telemedicine, we prefer to use earning per share multiple. Below calculated is the intrinsic valuation of the stock:
Value of stock= (Price/ EPS)* Industrial EPS
= 10.65/0.08* 1.73
= $230.46
Therefore, under the assumption of use of Average Industrial EPS represented by four leading companies on the basis of revenue, the intrinsic value of the stock is calculated to be at $230.46 per share.
Note:
All the values in the paper are in USD. However, while some values were in Japanese Yen and Swiss Franc, we converted them into USD using the following the exchange rate:
1 yen= 0.0081 USD
1 CHF= 1.07 USD
Forecasting Future Cash Flow
Company Size
SHL Telemedicine is the market leader in Israel with over 400 employees. SHL Telemedicine generates over 15 million in revenue and 17 million in net income.
Magnitude and sustainability of the competitive advantage
The main source of competitive advantage that made SHL Telemedicine has is the smartheart™ This gives them the lead in the first ever ECG mobile device. While this may not be the case forever, SHL has the honorable title of being the first and the technology in itself is a strong competitive advantage.
The increasing revenue growth during 2013 to 2014 shows that SHL Telemedicine has encountered an opportunity to explore. SHL acquired key business with global clients, such as health providers, insurers, group medical practices, individual health care providers and distributors, which boosted its services and enterprise solution's revenues, as a result of acquiring an important network in the telemedicine industry. According to the Telemedicine 2014 Annual Report, 2014 revenues increased nearly 25% from 2013.
Organized Financial Statements:
Calculating Free Cash Flows
Conclusion
Assuming our valuation is correct, we conclude that SHL is currently underpriced because we know that in 2014 SHL had a negative cash flow because of the USD appreciation against the NIS. Also, we know that the SHL is underpriced because the acquisition of GPH which has signed the first international distribution agreement for smartheart™, strengthens German market leadership – leading to strong growth with enhanced profitability.
It would be beneficial and acceptable for SHL to analyze what marginal increases are acceptable to acquire a fair market value considering the company’s highly advanced technologies and anticipated potential global market expansion.
