Protech Home Medical won’t be ruined by cyber theft, Beacon says

Protech Home Medical (Protech Home Medical Stock Quote, Chart TSXV:PTQ) has become victim of a cybercrime, one that has fleeced the company of $9.2 million, an amount which had been earmarked to repay its 7.5-per-cent non-convertible debentures. But fear not, says Doug Cooper, analyst for Beacon Securities, the issue won’t lead to a going concern for the healthcare company.

In-home patient monitoring and disease management company Protech announced the theft on Monday, saying that it was caused by a breach of its email system and that the company was working with authorities (RCMP, FBI and Hong Kong police) as well as a private cybersecurity firm in effort to recover the funds.

“Although this loss, if realized, is a setback for the company, given the work that we have done over the past several quarters, the company’s operations and margins are unaffected by these events and our balance sheet will remain in a healthy overall position,” said CEO and Chairman, Gregory Crawford, in a press release. “I am also very pleased to support the company with additional capital to enable us to redeem the Debentures and continue to make the substantial strides we have made since December 2017.”

Cooper says that while the theft is a setback for Protech, particularly concerning its near-term acquisition strategy, it’s not a company-breaker, for a number of reasons, saying that taking the theft into consideration, PTQ still has approximately $3 million in cash and $7 million of working capital.

“We remain steadfastly bullish of companies participating in the aging demographic segment given that as the Baby Boom population reaches the ‘Age of Illness,’ they will need more products/services of the kind that PTQ offers. This is, and will continue to provide, a tailwind for growth,” said Cooper in a client update on Tuesday.

“Furthermore, management has done an excellent job over the past several quarters expanding its EBITDA margin profile from 8 per cet in Q1/FY18 to 20 per cent in Q1/FY19,” he says.

The analyst says that the event has no impact on his EBITDA forecasts and that therefore he is not changing his estimates, which call for fiscal 2019 revenue and EBITDA of $88.7 million and $16.9 million, respectively, and fiscal 2020 revenue and EBITDA of $104.1 million and $20.8 million, respectively.

Cooper says that PTQ is now trading at 5x his fiscal 2019 estimates and 4x his fiscal 2020 forecasts, which puts it at a 50- to 65-per-cent discount to its peer group. He is maintaining his “Buy” rating with a reduced target of $2.50 (was $3.00), which he attributes to the company’s recent $15-million financing as well as the approximately $0.11 per share loss from the cybertheft. Cooper’s $2.50 target represents a projected return of 216 per cent at the time of publication.