WELL Health Technologies is still undervalued, Beacon Securities says

This morning, WELL reported results from previous 14 months, as the company recently switched its year-end from October to December. In this period, the company lost $2.59-million on revenue of $10.6-million, a topline that was up from zero revenue in the same period a year prior.

“On Nov. 1, 2018, Well acquired 13 additional clinics,” CEO Hamed Shahbazi noted. “With November and December results reflecting Well’s full fleet of 19 clinics, this demonstrates the strong revenue-generating capabilities of Well’s newly expanded network. Well’s newly formed shared services teams are working hard to leverage its improved scale to make investments designed to further secure and support clinical operations. These changes include, but are not limited to, improvements in the clinics data security posture as well as improvements in all aspects of work flow, which are designed to improve both the physician and patient experience. Well management continues to be very focused on finding and securing additional acquisitions to grow both its clinical and digital portfolios in a manner that is accretive to shareholder value over the short and long term.”

Leung characterized the results against the numbers he had modeled.

“For the 2-month period ended December, Well reported revenues of $4.7M and an adjusted EBITDA loss of $156k. ~90% of revenues were from insured services and the remainder non-insured,” the analyst said. “Note that the stub period ended December included a full contribution from the acquisition of 13 primary healthcare clinics in BC, which closed November 1st (along with the initial six, which was closed earlier in the year). However, it did not include contributions from the acquisition of NerdEMR, which closed on January 2nd and, which we estimate, was generating recurring software revenues of sub-$1M. If we annualize the 2-month results, then that would imply the company is currently on a ~$28M revenue and ~$1M adjusted EBITDA loss run-rate (before factoring NerdEMR), which we believe compares favorably to our current 2019 revenue / EBITDA estimates of $27M and negative $1M respectively.”

In a research update to clients today, Leung maintained his “Speculative Buy” rating and one-year price target of $0.90 on WELL, implying a return of 43 per cent at the time of publication.

Leung thinks WELL will post EBITDA of negative $1.0-million on revenue of $27.0-million in fiscal 2019. He expects those numbers will improve to EBITDA of positive $1.0-million on a topline of $33.0-million the following year.

“Overall, we view the 2-month stub results as being very encouraging vis-à-vis our current growth forecast for Well,” the analyst adds. We believe additional clinic acquisitions (possibly outside of BC), technology M&A, and evidence of up-selling and operating synergies represent key potential upside catalysts for our estimates and valuation.”

Disclosure: WELL Health is a sponsor of Cantech Letter and Nick Waddell owns shares of the company.