Oncoclínicas (ONCO3), a major player in Brazil’s oncology sector, has faced a significant drop in its share price. Even after reporting the first positive cash flow in several quarters, investor confidence remains shaky.
As of November 13, 2024, Oncoclínicas shares fell by 6.97%, trading at approximately R$4.14. This drop follows a worrying trend, where the stock has lost about 67% of its value year-to-date.
The company’s third-quarter results disappointed analysts. They expected better performance, especially in terms of profitability. Net income fell by 97.9% year-on-year, reaching just R$3.1 million ($544,000). This sharp decline stemmed from lower operating leverage, increased expenses and a higher effective tax rate.
Despite these challenges, Oncoclínicas reported a free cash flow of R$20.3 million ($3.56) for the third quarter 2024. This marked a turnaround from previous quarters characterized by cash burn. Improved cash flow processes and better working capital management contributed to this positive cash flow.
However, this figure does not include various factors such as debt movements and capital expenditures related to acquisitions. The company indicated that cash generation improved due to increased collections from health plans and lower capital expenditures.
In terms of revenue, Oncoclínicas experienced a 16.6% increase in net income for the third quarter 2024, reaching $1.63 billion ($286 million). This growth resulted from a 7.9% increase in procedure volumes and a 4.9% increase in average ticket price within its oncology segment.
Adjusted EBITDA also increased by 8.3%, reaching R$309 million ($54 million) compared to the same quarter last year. Despite these gains in revenue and EBITDA, the company’s net debt rose to $3 billion ($526 million) by the end of the third quarter.
Operating costs increased significantly during this period. Total cost of services reached $1.1 billion ($193 million), representing a year-over-year deterioration of 19.6%. This amount constituted 62.1% of the gross income.
Investor confidence drops as Oncoclínicas reports 97.9% drop in net income
Investment firms such as BTG Pactual have highlighted key concerns: slowing revenue growth, pressure on margins due to reduced operating leverage and rising net debt levels. They maintain a neutral recommendation on ONCO3 shares with a target price of R$8.50 ($1.49) over the next year.
Analysts at JP Morgan echoed those sentiments, noting that the company’s stock trades at about 12 times its 2025 price-to-earnings ratio, while maintaining a neutral outlook on its stock.
Looking ahead, analysts suggest that Oncoclínicas needs to demonstrate improved capital discipline and clearer signs of impairment for investors to regain confidence. The recent focus on higher quality payers may slow growth, but can lead to better long-term profitability if managed effectively.
Goldman Sachs remains cautiously optimistic about Oncoclínica’s future despite current challenges. They maintain a buy recommendation with a target price of R$9 ($1.58) for the next twelve months.
In summary, Oncoclínicas has made strides in generating cash flow and growing revenue. However, significant operational challenges and high debt levels continue to weigh heavily on investor sentiment and stock performance. The company’s ability to navigate these issues will be critical to restoring market confidence going forward.
