Centric Health is taking positive steps forward, says Byron’s Loe

Byron Capital analyst Douglas Loe says Centric Health (Centric Health Stock Quote, Chart, News: TSX:CHH) is slowly taking steps to improve its balance sheet.

On Monday, Centric announced it had redeemed an additional $7.5-million of preferred units of LifeMark Health LP held by Alaris Income Growth Fund Partnership for cancellation. Alaris, of course, is the company that Centric acquired its physiotherapy-rehabilitation therapy services from two years ago.

CFO Daniel Gagnon said the company was on its way to redeeming all of the relatively expensive units.

“The additional repayment of a portion of our most expensive debt is another meaningful step forward as we continue to focus on strengthening our balance sheet,” he said. “The company intends to redeem the remaining units, which may be redeemed in whole or part at par prior to June 8, 2014, after which they escalate at 4 per cent per annum.”

Loe says it is ” unambiguously positive” that Centric is reducing its financing costs. He notes that the value of Alaris’s ownership has already been reduced from $65.5-milion to $30-million. He says that in today’s low interest environment, financial obligations at 10.4% annually are “clearly onerous”, and he is encouraged by the company’s efforts. In a research update to clients, Loe maintained his BUY rating and $1.75 target price on Centric Health.

Founded in 2001, Toronto-based Centric Health provides a range of healthcare services including rehabilitation management, medical assessments, and physiotherapy. The company has quietly become a player in the Canadian healthcare services field, having grown its revenue from $15.7-million in fiscal 2008 to more than $200-million in 2011. The physiotherapy market has become a focus for Centric. In Q1 alone, the The company expanded its national footprint in the vertical with the acquisition of five physiotherapy businesses. Last July, former Leisureworld Senior Care boss David Cutler replaced Daniel Carriere as CEO.

Loe says his price target is derived from applying 10x Enterprise Value to his expectations of Centric’s fiscal 2014 adjusted EBITDA, which he thinks will come in at $53.2 million.

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