With a much improved balance sheet, Protech Home Medical (Protech Home Medical Stock Quote, Chart, News TSXV:PTQ) is once again ready to jump on the M&A bandwagon, according to Beacon Securities analyst Doug Cooper, who on Monday provided a client update on the company and stock.
Cooper has decided to maintain his “Buy” rating and C$2.50 target price, arguing that PTQ remains “far and away the cheapest stock in the healthcare universe.”
Protech, which offers in-home monitoring and disease management services for patients in the US healthcare market, announced last week the acquisition of Kentucky-based Cooley Medical (CMI) for $3.1 million in cash and the assumption of $0.9 million in debt. The purchase is PTQ’s first in a year’s time and by far its largest to date, with CMI generating about $9 million in revenue annually at a ten-per-cent EBITDA margin.
Protech management says that combined with the company’s existing operations, the deal should put the company’s annualized run-rate revenues at between $95 and $97 million and adjusted EBITDA between $17 and $19 million.
“The CMI acquisition is expected to be immediately accretive to revenue and Adjusted EBITDA as we use our regional expertise and infrastructure to achieve revenue and profit growth through our integration platform. These types of acquisitions are expected to significantly increase our penetration in our existing markets for marginal incremental cost and will continue to be one of our core strategies going forward,” said Protech chairman and CEO Greg Crawford, in a press release.
Cooper says the CMI deal is not only cheap but accretive, with a net purchase price coming out to about $2 million or just over 1x EBITDA.
Further, the analyst says that Protech’s balance sheet has looked a lot better over the past few months. At the end of June, its 2019 cash position of $4.2 million was augmented by the return of $8.6 million of stolen funds, $4.3 million from the sale of a non-core asset offset by the repayment of a $3.5-million bridge loan from the CEO. All told, PTQ’s cash position should be about $13 million, Cooper estimates.
“As we noted in the cash analysis above, post the acquisition of CMI, we anticipate PTQ still has ~$10 million in cash. As its underlying business is now FCF positive, we believe such cash can be ear-marked towards additional acquisitions,” writes Cooper.
“While it is (very) unlikely to transact at similar multiples to CMI, if we assume 4-5x EBITDA purchase price, we believe PTQ could acquire an incremental $2 million of EBITDA without dilution or leverage. Using our FY20 EBITDA forecast as a base, which includes the acquisition of CMI, any incremental transactions could take our forecast to ~$23 million. In terms of visibility on any such transactions, PTQ has indicated that its M&A pipeline is robust. We would expect additional acquisitions perhaps late in Q1/FY20 (period ended Dec 31, 2019) but more likely in Q2,” he says.
Cooper predicts that PTQ will generate fiscal 2019 revenue and EBITDA of $88.7 million and $16.9 million, respectively, and fiscal 2020 revenue and EBITDA of $104.1 million and $20.8 million, respectively. His C$2.50 target represents a projected 12-month return of 191 per cent at the time of publication. (All figures in US dollars unless where noted otherwise.)