Protech Home Medical has 233 per cent upside, Beacon Securities says

New equity financing and a stock currently trading well below its peer group has analyst Doug Cooper of Beacon Securities feeling bullish about Protech Home Medical (TSXV:PHM). In a client update on Wednesday, Cooper reiterated his “Buy” recommendation with the raised target price of $0.50 (previously $0.45).

Last week, Protech announced the closing of its equity financing which included a $3.4-million bought deal and a $1.1-million insider non-brokered offering.

“This financing is a testimony of the confidence that PHM has gained in the short amount of time since the new management team has been in place. I strongly believe that PHM will reach new heights over the next 12-18 months as we execute our corporate strategy on the back bone of our robust balance sheet”, said Greg Crawford, Chairman and CEO of PHM, in a press release.

Cooper says that Crawford’s ownership now sits at about 44 million shares or about ten per cent of the company, a figure which speak to management’s positive outlook regarding the company’s prospects.

“At a current valuation of 4x our upwardly revised FY19 forecast and 3.3x our FY20 forecast, the stock is trading well below even the low-end of its peer group,” says Cooper. “While the stock’s valuation seems to imply the market is concerned about its liquidity, nothing is further from the truth. Its Q2 results signalled a return to free cash flow generation while the Q3 results signalled a return to growth. The $4.5 million financing dramatically strengthens the balance sheet. The fact that insiders subscribed for 25 per cent of the issue should extinguish any final lingering doubts about liquidity concerns or profitable growth opportunities.”

Protech also released its Q3 financials last week, producing $19.7 million in revenue, a 5.3 per cent uptick over the previous quarter and Adj. EBITDA of $3.6 million, a 60.3 per cent growth over Q2.

The quarter demonstrated the company’s strong organic growth while its improved balance sheet gives PHM options for acquisition growth, says Cooper, who raised his fiscal 2019 estimates from revenue and EBITDA of $81 million and $14.6 million to $85 million and $15.3 million.

“With its turnaround now complete, we believe a re-rating is next,” says Cooper. “With a margin profile akin to other industry participants and a strong balance sheet, we believe PHM should trade in-line.”

Cooper’s price target represents a projected 12-month return of 233 per cent at the time of
publication.