In a Tuesday note to clients, Rosenberg maintained his “Buy” rating while raising his target price from $0.90 to $1.10 per share, representing a projected return of 22 per cent at the time of publication.
On May 30, Well Health announced the acquisition of KAI Innovations, Canada’s largest open-source electronic medical record (OSCAR EMR) provider, for a total consideration of $10.8 million. Kai Innovations generated $3.5 million in LTM revenue at an Adjusted EBITDA margin greater than 30 per cent and serves approximately 560 clinics in Ontario.
Rosenberg says the deal along with the recently closed OSCARprn acquisition will increase WELL’s technology revenue to represent a more meaningful portion of its business.
“WELL is in the early stages of leveraging technology to improve outcomes and drive operational efficiencies in the ripe healthcare sector. Predictable cash flows from its primary health clinics help to de-risk WELL’s strategy of incubating, deploying and scaling new technologies in healthcare. We like this strategy and believe investors will be rewarded as WELL unlocks synergies between primary clinics, patients and technology solutions,” says Rosenberg.
The analyst now estimates that Well Health has $4.9 million in cash on hand, which he believes to be sufficient to fund operations and pursue additional tuck-ins with minimal cash burn, although the potential for larger M&A may require additional debt or equity financing.
Rosenberg has updated his estimates and now thinks that WELL will generate calendar 2019 revenue of $32.7 million (was $29.0 million) and an adjusted EBITDA loss of $0.7 million (was a loss of $1.2 million). He now thinks it will generate calendar 2020 revenue of $42.2 million (was $37.8 million) and adjusted EBITDA of $1.9 million (was $0.5 million).
Disclosure: Cantech’s Nick Waddell and Jayson MacLean own shares of WELL Health.
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