Vitrolife is coming off an abominable earnings release, which caused the company's share price to plunge 17% on July 14. Its journey as a listed company resembled a dream between 2009 and the very beginning of 2022. And a kind of nightmare ever since. More trivially, let's say that, as is often the case with this type of company, excesses work both ways. But why are we interested in Vitrolife? Because its profile is extremely rare on the financial markets. The Swede is a specialist in assisted reproduction.
 
More precisely, the company develops and markets products and systems dedicated to in vitro fertilization. As every detail counts in the delicate process of assisted reproduction, Vitrolife is present throughout the entire IVF cycle. The equipment for oocyte retrieval and sperm separation, then everything needed for fertilization and culture, but also the tools for embryo evaluation and transfer. As a result, the company's main customers are clinics and hospitals specializing in assisted human reproduction, and even research laboratories.
 
The business model has been honed over the thirty years of existence of the Gothenburg-based company, which has been listed on the stock exchange since 2001. It involves convincing practitioners to choose Vitrolife solutions, training them and then selling them consumables linked to the equipment installed. Not a very original approach, but one that has proved its worth. The company broke even several years ago, which sets it apart from the rest of the biotech industry, which tends to accumulate losses. Modest indebtedness, coupled with high cash generation, enabled the acquisition of Igenomix in 2021 for 1.25 billion euros. This laboratory specializes in reproductive genetic testing, and is well established in clinics that perform in vitro fertilization. It has boosted the Group's previously limited genetics business.
 
In 2022, the new duo will post sales of SEK 3.23 billion (around 280 million euros), with an operating margin of around 20%. This high level of profitability illustrates the quality of the company's business model, especially when combined with its excellent free cash flow generation. Vitrolife has even been paying a small dividend for many years, which is rather rare in the world of biotech companies of this size. As for sales, they are growing steadily, driven by population growth and the development of IVF for couples having difficulty having a child. It is now based 40% on consumables, 40% on genetic testing and the balance on the technology division. Sales should increase by a quarter between 2022 and 2025, and profitability should improve. In any case, this is the company's promise, still valid despite the air pocket that affected the share price in mid-July.
 
Vitrolife is therefore a niche player, whose competitors are often integrated into larger medical groups. It can, however, count on a strong shareholder base with a large Scandinavian majority. The William Demant Foundation (Denmark) holds 26.7% of the capital, while Swedish long-term investor Bure Equity owns almost 16%. Valuation is high, as is generally the case for healthcare companies operating in a rare field, but has recently fallen below the average of the last ten years. The 2025 earnings multiple is even below 30x, the first time this stock has been seen in ages. Given that the share price has lost two-thirds of its value since the excesses of 2021, this provides an entry point which, while not totally reasonable, is considerably more affordable.