Despite a recent dip from highs, shares of QHR Technologies (TSXV:QHR) have had a nice year-long run. But Mackie Research Capital analyst Massimo Voci says there is still a lot of upside in the Kelowna-based healthcare tech player.
This morning, Voci initiated coverage of QHR with a BUY rating and a one-year target of $1.75, implying a more than 40% return over yesterday’s closing price. He says QHR offers a “compelling opportunity” for investors because it operates in a rapidly growing space, has a history of profitability and high levels of recurring revenue, yet trades at a valuation he believes is discounted.
Voci says the Electronic Medical Records space is fragmented and QHR is well positioned to grow as it enters the U.S. market because it has a proven ability to grow its EMR business organically and through acquisition, and the company is now cashed up, with more than $15-million in the bank.
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Much of the that cash came from the December sale of QHR’s Enterprise Management Solutions division for $20-million. Voci says he liked that move because the EMS business contributed scale and profitability, but it did not have growth. He says following the sale QHR’s margins may decline in the short termto about 10%, but the company should be able to grow these to 15% by fiscal 2015, towards management’s ultimate goal of 20%.
With EMR now constituting the vast majority of QHR’s business, Voci looked at the bigger picture on its adoption in markets the company is addressing. He notes that Canada is actually a laggard compared to places like the United Kingdom, Netherlands, Norway and Australia, where adoption exceeds 90%. Adoption in Canada grew from 37% to 56% from 2009 to 2012, according to one survey. The Mackie Research Capital analyst believes QHR will continue to benefit from increasing adoption at home as it readies itself to enter the U.S. market.