Pushback from Nobilis Health gets thumbs up at Mackie Research

Actions taken to protect its reputation underscore why Nobilis Health (Nobilis Health Stock Quote, Chart, News: TSX:NHC) is a top pick at Mackie Research Capital, says analyst Russell Stanley.

Yesterday, Nobilis announced that it had filed suit in the Ontario Superior Court of Justice against Sunny Puri, Anson Canada, Anson LP, Anson Capital, Anson Investment Fund and Anson Catalyst Fund, amongst others. The company claims the aforementioned perpetrated a scheme to damage Nobilis’s reputation and business relationships in order to profit through short-selling of Nobilis stock, and the company is seeking $300-million in damages, an amount the company says is approximately equal to its lost market capitalization.

The lawsuit follows on the heels of an anonymous post to the website Seeking Alpha by an anonymous poster nicknamed “The Emperor Has No Clothes”. It prompted a sharp selloff in shares of Nobilis that caused the stock to be halted. The post called the company “significantly overvalued” and said insiders have cashed out more than $70-million through a combination of share sales and compensation. The post also said turnover at the CFO level was a “red flag”.

On Tuesday, Nobilis released the results from the independent review it had commissioned, called the “Hopper-Davis” report. The report found accusations about the company’s level of acquisition vs. non-acquisition growth, the insurance coverage of AccuraScope procedures, CEO compensation, allegations of insider sales and auditor and CFO changes baseless.

“After examining all of the blogger’s allegations, including the five primary ones above, we have determined that the allegations are false, misleading, or without foundation. Moreover, given that we find other allegations are false or misleading, based upon all statements taken, all supporting documents reviewed and, on the face of the company’s securities filings, we find the blogger is not credible,” concluded the report.

Stanley says he thinks Noblis’s actions are a sign that its offense has come on to the field.

“We view this week’s release of independent counsel’s report, and management’s response, as supporting our investment thesis and our top pick rating,” says Stanley.

The analyst says he is now looking forward to next Wednesday, when Nobilis will report its third quarter results. The street consensus has Nobilis generating EBITDA (net of NCI) of $7.0-million on revenue of $54.5-million, but Stanley is a little more optimistic than that, predicting that the company will produce EBITDA of $8.2-million on a topline of $57.3-million.

In a research update to clients today, Stanley maintained his “Buy” rating and one-year target price of $12.50 on Nobilis Health, implying a return of 149% at the time of publication.

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