Beacon Securities launches coverage of Well Health Technologies with a $0.90 target

Vancouver-based Well Health currently owns and operates 19 family practice clinics which feature 170 general practitioners and over 50,000 patient visits per month. With former Tio Networks’ Hamed Shahbazi as CEO, the company aims to leverage technology to empower and support doctors and patients.

Leung says that through its free cash flow generation via its clinics, WELL should have the opportunity to acquire and develop healthcare technologies to integrate into its clinics and ultimately license to other third-party clinics. The analyst believes that with healthcare costs continuing to grow, Well Health is positioned within a very recession-resilient market.

“Canada healthcare is a large market opportunity at $242 billion, representing ~11.5 per cent of GDP or $6,604 per citizen and growing at 3.9 per cent year-over-year. We view this as an attractive recession-resilient business. We believe there are only a limited number of large healthcare clinic groups similar to Well, which provides significant M&A opportunity for the company to grow its network of clinics. Aside from cost/workflow efficiencies, we believer there is opportunity for margin growth via up-selling non-insured services,” Leung said in a coverage initiation on Thursday.

Leung points out that WELL’s most recent quarterly results (fiscal Q4 ended October) showed revenues of $1.9 million against an Adjusted EBITDA loss of $537,000. He estimates that the company’s cash position stands at approximately $3 million.

Leung is predicting fiscal 2019 EBITDA of negative $1.0 million on revenue of $27.0 million and fiscal 2020 EBITDA of positive $1.0 million on a top line of $33.0 million.

For catalysts, Leung sees the following: additional M&A; successful up-selling of non-insurable services to clinics in the Well Health network; new sales of the NerdEMR platform and other acquired healthcare technologies; and potential referral fees from third-party specialist groups and royalty fees from clinics that want to join Well as affiliates.

The analyst says that Well Health has a strong management team, pointing to Shabazi, who is a 20 per cent shareholder and Sir Li Ka-shing, who is a 20 per cent shareholder via Horizon Ventures and his personal holdings.

Leung’s $0.90 target stems from a 2.5x multiple of his CY20 sales estimate of $33 million and represents a 12-month return of 76 per cent at the time of publication.

Disclosure: Cantech Letter’s Nick Waddell owns shares of Well Health Technologies