| goetzpartners securities Limited Nexstim OYJ (NXTMH-FI): 2018: An exciting year ahead 05-March-2018 / 09:35 GMT/BST Free to access research in a post-MiFID2 world Nexstim OYJ (NXTMH-FI): 2018: An exciting year ahead Recommendation: OUTPERFORM Target Price: EUR1.23 (increased from EUR0.93) Current Price: EUR0.20 (cob on 2nd March 2018) KEY TAKEAWAY We reiterate our OUTPERFORM recommendation on Nexstim and ahead of what is likely to be an exciting year of news flow, we increase our target price to EUR1.23 (from EUR0.93). We believe the risk reward relationship is very lucrative - the company is on the way to developing a new therapy platform of NBT system with appealing recurring revenue. Recent FDA approval for depression reduces the risks as the platform is not solely based on stroke rehabilitation anymore. Nexstim is a Finnish medtech company with game changing technology for targeting transcranial magnetic stimulation ("TMS") treatment in the brain. NBT, a platform for profitable growth: The company initially validated the company with NBS (Navigated Brain Stimulation), used for pre-surgical mapping of the motor cortex. NBT (Navigated Brain Therapy) uses the same technology in therapy of various neurological and psychiatric indications. The NBT equipment is intended to be used for multiple indications including stroke rehabilitation, depression and neurological pain. The growth drivers are the number of outstanding units and their utilisation rate where multiple indications for the same unit are the key. With the profit margins on the consumables exceeding 80%, Nexstim's business model will combine high profit margins with stickiness of customers. Risk-reward situation improving further: Since our initiation note (22nd May 2017), the company has improved their cash situation by raising more finance and received the FDA approval for NBT system in depression treatment. The key uncertainly remains the same - the outcome of the stroke trial E-FIT in Q3/2018 - but with the patient enrolment complete and the FDA approval for depression de-risking the device, the risk-reward situation has improved further in our view. FY2017 sales were slightly below our expectations (EUR2.6m vs. EUR3.0m) while the loss was smaller than we expected (EBIT EUR-5,6m vs. EUR-6.3m). Gross margin expansion was stronger and personnel cost reduction larger than we expected. The company guides for a larger loss in 2018, which we already expected. Launch in depression will start driving the growth in Q2/2018, but there is uncertainty on the pricing model Nexstim will use. It is possible that the NBT business will move into specialised centres that will use the units for multiple indications, leading to more uniform pricing of consumables and services per unit. Our current model is based on unit sales plus recurring consumable sales, but it is possible Nexstim will move to monthly invoicing. This would not have an impact on the long-term value, we believe, but may affect the timing of the sales growth. We provide an update on the expected dilution. Investors should note that the current market cap does not reflect the eventual dilution - see chart 13 for details. In our view, the company has executed an impressive turnaround and the current market cap is clearly too low for a promising medtech company like Nexstim. Based on our DCF valuation we set our new target price at EUR1.23 (increased from EUR0.93) and reiterate our OUTPERFORM recommendation. Click here for full PDF version Kind regards, goetzpartners Corporate Research | Research Team goetzpartners Corporate Research goetzpartners securities Limited The Stanley Building, 7 Pancras Square, London, N1C 4AG, England, UK. 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