Nobilis Health gets price target raise at Mackie Research

Mackie Research Capital analyst Russell Stanley says a new debt facility reduces the balance sheet risk of Nobilis Health (Nobilis Health Stock Quote, Chart, News: TSX:NHC).

On Friday, Nobilis Health announced it had entered into a new $82.5-million five-year credit facility with BBVA Compass Bank consisting of a $52.5-million term loan and a $30-million revolving credit facility. Part of the proceeds were used to close the acquisition of Arizona Vascular Clinics, for which Nobilis will pay $22.0 million plus a performance-based earn-out based on growth in Adjusted EBITDA.

“The expansion of our borrowing capacity and refinancing of existing debt enhances our ability to continue to implement our long-term growth strategy, lowers our overall borrowing costs and further increases our liquidity position,” said Nobilis CEO Harry Fleming. “The support of our new bank syndicate led by BBVA Compass enables us to utilize this new source of credit to continue our ongoing execution of fundamental organic growth, while funding acquisitions in new and existing markets.”

Stanley says the financing should go a long way towards instilling investor confidence in light of a struggling share price and growing short position.

“The stock’s recent decline likely reflected concerns about the Company’s ability to obtain debt financing in order to close this purchase,” says the analyst. “The expanded credit facility not only provides financial flexibility, but it also validates the underlying business opportunity.”

In a research update to clients today, Stanley maintained his “Buy” rating on Nobilis Health, but raised his one-year price target on the stock from $7.00 to $7.75, implying a return of 72 per cent at the time of publication.

Stanley thinks Nobilis Health will post Adjusted EBITDA of $51.7-million on revenue of $279-million in fiscal 2016. He expects these numbers will improve to EBITDA of $67.2-million on a topline of $342.2-million the following year.