PI Financial analyst David Kwan likes what he sees in health care tech company WELL Health Technologies (WELL Health Technologies Stock Quote, Chart, News TSXV:WELL), which got a “Buy” rating and $1.80 target price from Kwan in a coverage initiation on Thursday.
Begun in June of 2017 as Canada Yoga and then Wellness Lifestyles, Vancouver-based WELL leverages technology to consolidate and modernize its primary heath care assets. The company currently owns 19 health clinics in Canada with 400 employees and about 180 physicians and is a leading provider in Canada of OSCAR electronic medical records (EMR) services.
Well Health is led by Chairman and CEO Hamed Shahbazi, who previously founded TIO Networks and carried it towards its acquisition by PayPal in July, 2017, for over $300 million.
In his coverage launch, Kwan praises WELL’s strong management team, along with the endorsement the company received from Li Ka-Shing, an early investor in the company who now owns or controls approx. 17-18 per cent of the stock.
“WELL has done a great job in quickly becoming a leading player in the Canadian healthcare market. With a proven leadership team, a major endorsement and investment by Li Ka-Shing, and a strong foothold in a large fragmented market that offers significant growth opportunities for many years to come, we believe the Company is WELL positioned to deliver robust returns for shareholders going forward,” writes Kwan.
Kwan argues that demographics in Canada point to an aging population and thus a rise in healthcare costs which will challenge governments to modernize and become more technologically focused in order to deliver more effective and efficient patient care, a trend which bodes well for WELL.
Kwan points to a few potential bumps in the road for WELL, mentioning: (1) that the medical software and EMR space currently has some much larger players including Telus Health, Loblaw and McKesson; (2) that the impact of technology on healthcare will likely result in less face-to-face patient-doctor visits and more tele-medicine, thereby leading to lower billings and revenue for clinics; (3) that WELL, along with other healthcare providers, are at the whim of government when it comes to reimbursement and thus can be impacted by political winds; and (4) that physicians may prove resistant to new technology.
At the same time, the analyst’s forecast for WELL calls for strong growth driven by an active M&A strategy, with Kwan projecting that WELL will acquire about ten more clinics and another EMR/software company at the start of 2020. Kwan thinks that those additions will push WELL’s revenue from $10.6 million in fiscal 2018 to $31.4 million in fiscal 2019 to $56.1 million in fiscal 2020. For earnings, he is forecasting adjusted EBITDA of negative $0.9 million in fiscal 2019 and $2.7 million in fiscal 2020. Kwan’s $1.80 target represents a projected 12-month return of 13.9 per cent at the time of publication.
On May 29, WELL delivered its first quarter 2019 results, coming in with $7.4 million in revenue, a 285-per-cent year-over-year increase, and an adjusted EBITDA loss of $338,000 compared to income of $33,000 a year prior.
On Thursday, WELL announced the completion of an upsized bought deal private placement of special warrants for gross proceeds of $15 million, which is expected to be put towards future acquisitions, organic growth investments, working capital and general corporate purposes.
Disclaimer: Nick Waddell and Jayson MacLean of Cantech Letter own shares of WELL Health Technologies