Well Health is set for more M&A growth, says PI Financial

It’s a matter of when not if Well Health Technologies (Well Health Stock Quote, Chart, News TSXV:WELL) will be making more moves on the M&A front, says PI Financial analyst David Kwan.

In a corporate update on Monday Kwan reiterated his “Buy” rating and $1.80 per share target price for WELL. Kwan says he marketed Chairman and CEO Hamed Shahbazi last week, detailing the company’s disciplined focus on capital allocation.

“The M&A pipeline remains top of mind for investors,” says Kwan. “On that front, WELL has close to a dozen targets at various stages of the LOI process (split ~50/50 between chains of clinics and EMR/software companies) while it has a modestly larger number of additional targets where they are at an earlier stage of the M&A process.”

“WELL is focused on expanding its clinic footprint in Ontario but is also looking at growing its presence in B.C., while on the digital services front, WELL is looking to further consolidate the OSCAR market while adding complementary technologies like telemedicine,” said Kwan, who noted that to date, every LOI that WELL has signed has resulted in an acquisition, suggesting that we should expect more acquisitions in the quarters and years to come.

Kwan evaluates the marketing event as slightly positive for the stock and adds that WELL is now evaluating the possibility of up-listing to the TSX, which would open up the company to a larger set of potential investors and potentially bolster the stock’s valuation.

Well Health’s share price took off in early July on press coverage of the stock, taking it from the $0.90 range to where it currently resides in the $1.60 range. Year-to-date, WELL is up 269 per cent.

Kwan’s $1.80 target is based on a 4.5x multiple of his fiscal 2020 revenue estimate for WELL’s digital services business and a 3.5x multiple of his fiscal 2020 revenue estimate for WELL’s clinic business. The target represents a projected 12-month return of 9.1 per cent at the time of publication.

Kwan says WELL has the war chest available to keep the acquisitions coming.

WELL Health stock could have “significant” upside…

“With a cashed up balance sheet and the Company expected to turn cash flow positive soon, we note that WELL has plenty of additional capital to deploy for acquisitions that could provide (significant) upside to our forecasts,” he writes.

Going forward, the analyst thinks WELL will generate fiscal 2019 revenue and adjusted EBITDA of $31.4 million and negative $1.6 million, respectively, and fiscal 2020 revenue and EBITDA of $56.1 million and $2.7 million, respectively.

Last month, Vancouver-based Well Health released its second quarter 2019 financials, featuring revenue of $7.4 million, a 258-per-cent increase year-over-year and an adjusted EBITDA loss of $287,000.

Over the quarter, WELL completed its acquisition of OCSARprn – Treatment Solutions, while subsequent to the quarter, the company completed the acquisition of Kela Atlantic dba KAI Innovations.

“Q2 was an excellent quarter for us which demonstrated continued strong clinical revenue growth and increasing gross margin from our SaaS based EMR service,” said Hamed Shahbazi, Chairman and CEO of WELL. “In addition, the recently completed acquisition of KAI Innovations has been a very strong fit with our prior EMR related acquisitions and has spurred new growth and expanded capabilities in our EMR business.”

Disclaimer: Nick Waddell and Jayson MacLean from Cantech Letter own shares of WELL Health and the company is an annual sponsor of this publication.