LIMES Schlosskliniken AG
XTRA-LIK
Market cap: ~ €95.5M
LIMES Schlossklinik Mecklenburgische Schweiz (source. Google)
These are personal notes on a company I find interesting , it is not any kind of investment advice. I’m not a financial expert nor I want to become one. I could be totally wrong and any feedback is appreciated. Please do your own work.
Undiscovered company that grows by acquiring and developing high-quality private clinics for psychiatry, psychotherapy and psychosomatics in Germany, Switzerland and Liechtenstein.
9 clinics in/or beginning operations as for H1 24.
All private clinics are characterized by being on idyllic sites, from beautiful 19th century Maisons located in the countryside to resorts in the middle of the Alps.
The target customer is a private client who can afford a temporal treatment from its own pocket or through private insurance plans, but also international clientele and some public reimbursement plans customers.
LIMES benefits from the social trend on mental healthcare. Mental illnesses in Germany currently account for around 19% of total sick days, and the trend is rising.
Business Overview
LIMES is a provider of psychiatric services in Germany, Switzerland and Liechtenstein. It operates through exclusive private clinics situated in a quiet and ‘healing environment’. Their clinics are mainly kind of Hercule Poirot style, 19th century buildings, like the one on the image above, aimed at an exclusive clientele, offering a wide variety of treatments: from depression, trauma, anxiety, ADHD, personality disorders, Chronic pain, burnout, psychosis, sport psychiatry, sleep disorders or OCD.
Clinicum Alpinum in Liechtenstein, 51% stake as of H1 24. This is the fanciest place they manage IMO.
Market Characteristics
Tailwinds
Niche Market: This sector caters to individuals seeking specialized and personalized mental health services, often in exclusive or luxurious settings.
For instance, in Switzerland this is quite a national industry, and it is possible to plan a ‘mental health trip’ to the Swiss country through internet portals, where one can choose the clinic that best fits one’s demands. More info here: https://www.myswitzerland.com/en/planning/about-switzerland/health/hospitals-clinics/?medicalfields=mental-health-addiction
Fragmentation: The market comprises numerous private clinics, each offering distinct services and treatment approaches. This diversity indicates a fragmented market with various providers catering to different patient needs and preferences.
TAM: The mental health market in Germany is expanding, with projections indicating it will surpass USD 34 billion by 2029. This growth is driven by increased awareness and acceptance of mental health issues, leading to more individuals seeking care. Overall, in Europe the political debate on mental health is growing and positively arguing in favor of more and better psychiatric programs for the population. Mental illnesses currently account for around 19% of total sick days in Germany, and the trend is rising (source: Deutsche Angestellten Krankenkasse). This makes mental illnesses the second most common type of illness.
LIMES targets a specific niche segment of population. These are private patients that either self-pay their treatments or have private health insurance that reimburses them for their medical expenses. In Germany, private health insurance generally covers more services, offers greater flexibility, and reimburses higher treatment costs compared to statutory health insurance. Private patients may also receive state subsidies (e.g., civil servants often get partial reimbursements from the government for healthcare costs).
LIMES provides care that is more resource-intensive, or specialized which statutory health insurance (SHI, the public state insurance) does not cover, characterized by:
Longer, more individualized therapy sessions.
Access to a broader range of treatments or services that might not be available in clinics catering to statutory insurance patients.
Premium facilities and amenities.
Clinics serving statutory insurance patients operate in a different financial and operational model, often focused on cost efficiency. Providers like LIMES do not compete for this patient group because their services are not designed to fit within the reimbursement structure or cost expectations of SHI. It caters to a clientele willing to invest in premium, high-quality psychiatric and psychosomatic care. This segment includes wealthier individuals, expatriates, or those who prioritize discretion, comfort, and advanced treatments.
Challenges
The principal challenges that the industry faces are availability of qualified personnel and ongoing cost pressure on health insurance companies.
Shortage of Qualified Personnel:
shortage of workers specialized in psychiatry and psychotherapy, impacts the ability to hire and retain skilled professionals. In Germany, this is exacerbated by an aging workforce and increasing demand for mental health services.
Private clinics like LIMES compete with public healthcare providers and international institutions for the same pool of skilled professionals. Talented workers might prefer to establish themselves in a cosmopolitan area with hospitals available that offer more stable, long-term opportunities.
The demanding nature of mental health care, compounded by staff shortages, often leads to high levels of burnout among employees, making it harder to sustain a full workforce.
Already LIME’s personnel costs represent more than 45% of costs as a % of revenue (FY23) and, although revenues increased 50% CAGR from the period 2020-2023, so have personnel expenses (+45,26% CAGR). Acquisitions bring in new staff and more personnel expenses, while management explicitly stated on the FY23 report that the increase in personnel expenses did not correspond to the sales required to offset these costs.
This could imply underutilization of staff, but I discarded this issue because revenue and patient days are growing significantly. The thing is that salaries and benefits are largely fixed expenses, meaning they remain high even if patient intake or revenue generation is below expectations. Even so, newly integrated or expanded operations often take time to reach optimal efficiency and revenue generation, and this could be the case with the ramp-up of the Lichtenstein operations or with the clinics expected to open for FY25.
Cost Pressure on Health Insurance Companies:
Advances in medical technology, increased demand for services, and the aging population are driving up healthcare expenditures.
Statutory and private health insurance providers are under pressure to control costs while meeting the rising demand for services. This leads to tighter reimbursement policies, even for private insurance. Private clinics offering high-intensity treatments may struggle to secure full reimbursement from private health insurers, especially as insurers seek to minimize payouts.
If insurers impose stricter caps or reduce reimbursement rates, clinics may need to absorb more costs or charge higher out-of-pocket fees to patients. This could deter some private patients from seeking premium services, affecting patient volumes.
Paracelsus Recovery Clinic in Zurich, LIMES owns a 56% stake. You can find info here: https://www.dailymail.co.uk/femail/article-9430193/Inside-76-000-WEEK-rehab-royalty-rich-treated.html
Sales, profits & cash
After the IPO in the second half of 2019, LIME has embarked on several acquisitions and, as for H1 24, there are a total of 9 companies in the group’s portfolio.
Sales have grown triple and double digit for the last three years, and management gave guidance for FY24 of another double digit increase in revenue.
The company grows with the volume of days patients remain with the treatments and pricing. Patient days measures the total of days patients stayed on the clinics without regarding the type or the duration of the treatment for each individual. Patient days grew +26% YoY during FY23.
In FY23 EBITDA was impacted by ‘costs for staff reductions at the Lindlar site’ and ‘inflation-related additional costs’ and fell -11% from €8.65M to €7.67M. The Lindlar site has had some problems with the property owner and had to close for a while and is expected to re-open ‘within the first months of 2025’. Overall EBITDA has compounded at 109% CAGR since IPO.
Management expects 2 new acquisitions to add to top-line and EBITDA in the medium term (EBITDA guidance FY24 €9.8M).
It seems the company is going to re-invest all its cash and not pay dividends for the near-term. The investing part of the cash flow statement does not even report acquisitions as a separate item, but it puts everything as ‘investments in fixed assets’, so it’s impossible to know what part of this money goes for maintenance CAPEX, giving negative FCF after acquisitions recurrently.
Balance Sheet
€8.67M of liabilities to financial institutions as for H1 24, down from €10M at the end of FY23. There is not much disclosure of the credit facility and borrowing terms on the FY23 report, more than the statement: ‘a corresponding line of borrowed capital is available for the renovation of the Schlossklinik Abtsee property’. Financial expenses accounted for 1.2% as a percentage of revenue for FY23.
Investments in new locations and acquisitions have so far been financed primarily through equity and shareholder loans. This shareholder loans amounted to €2M as for H1 24 down from €3.2M in FY22. The company records the loans as long-term liability and has been repaying it. This loan could be from the major shareholder, who owns almost 80% of shares (more on this later). There is no short-term borrowing.
Long term assets mainly comprise goodwill (€9M). Goodwill is amortized over a period of 10 years. When an acquisition arises, the company acquires land & buildings, and equipment & machinery currently (H1 24) accounting for €8.5M tied cash.
Short-term assets are mainly inventories (€90M) up +16.6% YoY (H124-H123), cash of €7.8M up +25% YoY and trade receivables €5.3M up +80% YoY. Current ratio 3.9.
Main Risks
Losing the concessions for operating psychiatric clinics:
Of course, this is a Black Swan scenario, but who knows. Some legislators could argue that these clinics are bad if some problem happens with workers or health issues arise, for example. Moreover, these concessions require compliance with stringent healthcare regulations, safety standards, and accreditation requirements.
Losing listings with private health insurers:
If the clinic were to lose its listing or if insurers reduced the number of approved providers, it could directly impact patient inflow and revenue.
High-Quality Daily Treatment:
Maintaining a high status is labor-intensive and relies heavily on well-trained staff and efficient operations.
Cost pressures:
Insurers, facing their own cost challenges, pass these pressures on to service providers through reduced reimbursement rates and/or stricter cost controls and audits.
Patient generation strategies:
Many patients are referred by other healthcare providers (e.g., general practitioners, specialists, or hospitals). Building and maintaining strong relationships with referrers is vital to ensuring a steady stream of patients.
The company also needs to leverage online marketing and social media to attract patients.
Taxes:
According to the European VAT system directive, private clinics are exempt from VAT if they provide comparable services to statutory clinics. LIMES have opted to apply this exemption under the directive. That means the company does not charge VAT on their services. However, the clinic absorbs the VAT on its purchases, increasing operational expenses. Further, losing the VAT compliance could make tax expenses increase to the normal German tax rate.
Main Opportunities
Niche within the market for psychiatric illnesses:
This niche market concerns both the special real estate required and the know-how to successfully operate clinical services at the highest level. Scarcity of good locations and know-how might represent barriers for competitors to enter, at least in the German-speaking regions.
A market with positive medium to long-term prospects:
Increased awareness and acceptance of mental health issues leads to more individuals seeking care. Furthermore, the political debate is more open than ever on mental issues, and governments are facilitating the introduction of mental health businesses.
Fragmented Market:
‘LIMES Schlosskliniken is pursuing a long-term objective and aims to occupy the top segment of private clinics for psychiatry, psychotherapy and psychosomatics in Europe.’ (FY23 report)
I haven’t found many publicly traded German companies with the same business model. MEDICLIN (MED) is a €114M comparable company that operates hospitals in Germany, but they are actual hospitals not resort-like places and offer more treatments than only psychiatric health. Same as for Röhn Klinikum (€ 630M M.cap).
For example, Schoen Clinic Group, a private company, has a big installation near Hamburg for mental health treatment. The site is surrounded by German forests, and, as for the pictures it seems a nice place. But nevertheless, the rooms and interiors cannot be compared to what LIMES is able to offer. It caters to a completely different customer. In fact, ChatGPT answered me a list of similar companies and only could get private companies.
There could be the possibility for LIMES to consolidate this market in the future if they continue to focus on its target customers and core offerings.
LIMES mecklenburgische-schweiz-zimmer-suite.
The company has further room for acquiring more clinics:
Current number of clinics (H1 24).
Swiss culture:
Switzerland attracts medical tourists due to its reputation for high-quality care, discretion, and beautiful therapeutic environments. The country's picturesque landscapes, including the Alps, often play a role in the therapeutic appeal of psychiatric clinics. Switzerland is known for offering exclusive and high-end healthcare services, particularly for private patients.
Shareholders and share structure
293K shares outstanding as for H1 24 (which large fund is going to buy this?). The major shareholder is GMF Capital GmbH with 76.9% of ownership. The only information about this shareholder I could find its here: https://www.northdata.com/GMF+Capital+GmbH,+Frankfurt+a.+Main/Amtsgericht+Frankfurt+am+Main+HRB+104852
It seems it’s a private equity firm managed by Dr. Gert M. Frank, the same person who sign LIMES documents and reports as ‘Board of directors’.
Conclusion
Possibility to become a market leader in a small regional hub for mental health businesses like the Alps region, targeting high luxury end-customers with economic resilience. This niche service does not compete with clinics serving statutory insurance patients, which is served by larger, public players, but rather with a fragmented private equity market.
Mental health services are expected to grow significantly in the coming years, and LIMES is poised to benefit from this trend.
As for the guidance of €9.8M EBITDA for FY24, the company should trade at a FY24E EV/EBITDA of 10x (EV remaining equal as for H1 24, TTM EV/EBITDA 11x). I think this company could trade at 15x, at least, due to its niche, luxury offering combined with positive social tailwinds.