WELL Health Technologies still has double-digit upside, says GMP

It’s been one of the top Canadian stocks of 2019, but GMP analyst Justin Keywood thinks there is still plenty of upside left in WELL Health Technologies (WELL Health Technologies Stock Quote, Chart, News TSXV:WELL).

So says GMP Securities analyst Justin Keywood who today reiterated his “Buy” rating and one-year price target of $2.25 on WELL in a “Flash” update, implying a return of 43 per cent at the time of publication.

This morning, WELL Health announced it had acquired OSCARwest EMR Services Inc., a BC-based provider of electronic medical records, for $1.35-million. OSCARWEST provides EMR service to 90 medical clinics in British Columbia, covering more than 1,100 doctors and practitioners.

“OSCARwest was the first OSCAR service provider in B.C. and has always held a strong tradition characterized by great service and support and tireless contributions to the OSCAR community. For this reason, this transaction will be a fantastic complement to our digital services business,” said WELL CEO Hamed Shahbazi. “The acquisition of OSCARwest, along with our prior acquisitions of NerdEMR and, OSCARprn, will complete our acquisition of all three chartered OSCAR providers in the province of British Columbia and will further augment our EMR market share in Canada.”

Keywood says despite the performance of WELL Health Technologies stock this year, there are plenty of good reasons to believe it will continue to run.

“WELL is up substantially this year but there is still good opportunity for price appreciation in our view,” the GMP analyst said. “WELL has made eight transactions since 2018 to create a unique business model of 19 family doctor clinics with an ~8% EMR market share in Canada, along with other strategic investments,” the analyst said. “We believe that WELL will continue to be aggressively growth focused in expanding its health-tech platform with a solid management team and track record to support this pursuit. As a result, we look at other successful serial acquirers and unique business models in fragmented industries for what is an appropriate trading multiple. We conclude that 6x sales is reasonable for WELL with the growth profile ahead (~100% 2-year CAGR), which also de-risks the potential for a valuation reset to a certain extent.”

Keywood says historical comparables are hard to come buy, but thinks WELL’s runway to make solid acquisitions is a long one.

“There have been many EMR providers acquired by Telus Health and QHR Technologies over the past 10+ years, including six EMR companies acquired by QHR from 2004-2016. Transaction data is hard to come by as most of these acquisitions were tuck-in, private companies. QHR does offer a valuation point when it was acquired by Loblaw at $3.10 per share in August 2016 for $170mm. The acquisition price was at a 5x trailing sales and 40x EBITDA multiple or around 4x forward sales and 20x EBITDA,” he notes.

“WELL acquired NerdEMR for $2.55mm, which includes $1.4mm in cash, 1.3mm in common shares and a time-based earn-out of ~$500k over three years,” he continued. “There were no financials disclosed for NerdEMR but we estimate a purchase multiple at about 4x recurring annual sales. OSCARprn was subsequently acquired by WELL for $876k at around an estimated 3x sales multiple. KAI was acquired for ~$10.8mm at an approximated 3x sales and 10x EBITDA multiple with the acquisition expected to be immediately accretive. We see WELL’s EMR acquisitions to date as evidence of its ability to source good deals that could be repeated.”

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