Beacon Securities analyst Gabriel Leung likes the new majority stake acquisition by Well Health Technologies (Well Health Technologies Stock Quote, Chart, News TSXV:WELL), which while being a minor pickup could represent a blueprint for the company’s work in transforming and integrating its health clinics going forward.
Leung issued an update to clients on Wednesday wherein he reaffirmed his “Buy” rating and $2.00 per share target price for WELL, which translated into a projected return of 50 per cent at the time of publication.
Vancouver-based Well Health, which owns and operates a string of health clinics and leverages technologies for better integration of healthcare services, announced on Wednesday the acquisition of a 51-per-cent stake in Spring Medical Centre, a BC provider of integrative health services. The $667,000 deal includes $333,500 in cash, 133,400 in shares priced at $1.33 per share and $200,100 payable during a time-based earn-out period of three years.
Spring Medical currently provides services to about 27,000 patients and generated revenues over the trailing twelve month period of $2.3 million with EBITDA margins in excess of ten per cent.
Well Health says the transaction will be immediately accretive.
“Spring Medical has a very unique approach to integrative patient care and will broaden the umbrella of medical services offered by Well,” said Hamed Shahbazi, Chairman and CEO of Well, in a press release. “We are excited at the prospect of becoming a majority shareholder of Spring Medical and look forward to working with the Spring Medical team of care providers led by Dr. Nima Sakian. Well’s business expertise and shared services resources will position Spring Medical for future growth.”
Leung says the acquisition provides a glimpse into the future for Well Health.
“While small relative to Well’s current clinic revenues of ~$30 million, we believe the acquisition is a strategic one as it provides the blueprint for how Well would like to, over time, transform its existing and future clinic sites. That is, it would like its clinics, which are generally family physician offices, into multi-service, integrated health clinics. We believe this will help to accelerate same-store/clinic organic growth and margins,” says Leung.
The analyst says he is maintaining his near-term estimates pending the close of both the Spring Medical deal and the purchase of EMR services company Oscarwest, announced late last month.
Concerning upcoming catalysts for the stock, Leung points to Well’s third quarter results, due in mid-November, where he is forecasting $8 million in revenue and negative $480,000 in EBITDA.
Going forward, the analyst thinks that WELL will generate fiscal 2019 revenue and EBITDA of $31.6 million and negative $1.8 million, respectively, and fiscal 2020 revenue and EBITDA of $37.4 million and $0.1 million, respectively.
Earlier this month, Well announced a normal-course issuer bid for the company to acquire up to 5.4 million common shares over the next 12 moths, representing about five per cent of the issued and outstanding shares.
WELL has made big gains so far in 2019, climbing 193 per cent year-to-date.
Disclaimer: Nick Waddell and Jayson MacLean own shares of WELL Health Technologies and the company is an annual sponsor of Cantech Letter.