In an update to clients on Friday, GMP Securities analyst Justin Keywood says that his investment thesis on Well Health Technologies (Well Health Technologies Stock Quote, Chart, News TSXV:WELL) remains intact after the company’s just-announced normal course issuer bid.
Keywood says WELL is consolidating a valuable but fragmented industry in healthcare and technology and has the management team and track record to support its position.
Vancouver-based Well Health announced on Friday an NCIB for the company to acquire up to an aggregate of about 5.4 million common shares over the next 12 months, representing about five per cent of the issued and outstanding shares.
“In the event that WELL believes that its common shares begin trading in a price range that does not adequately reflect their underlying value based on WELL’s business prospects and strong financial position, WELL may purchase shares pursuant to the Normal Course Issuer Bid. Depending upon future price movements and other factors, WELL believes that its outstanding common shares represent an attractive investment and a desirable use of a portion of its corporate funds,” the company said in a press release.
Keywood, who is maintaining his “Buy” rating and $2.25 per share target, says that he recently had an update with WELL management and that he continues to have high conviction in his thesis and foresees M&A catalysts on the horizon.
“WELL is believed to be in advance stages for ten to 15 targets, including EMR assets and is evaluating a total pipeline of around 100 opportunities,” writes Keywood. “We see acquisitions as a positive for WELL, given the track record to date and management’s prior history of value creation, along with the strategic value of greater exposure to the valuable health-tech area. WELL now trades at ~3x forward sales, where we could see a valuation range of 6x sales during a high growth period of M&A, consistent with other successful consolidators. We continue to have high conviction in WELL.”
Keywood thinks that WELL will continue to increase its market share in Canada’s EMR industry, both organically and through M&A, and continue to be aggressively growth-focused in expanding its health tech platform. With this in mind, he says that he’s looking to other successful serial acquirers and consolidators (he names Enghouse Systems, Descartes Systems Group and Constellation Software) before concluding that a 6x sales multiple is reasonable for WELL with its growth profile of about 100 per cent two-year CAGR.
The analyst thinks WELL will generate fiscal 2019 revenue and EBITDA of $31.0 million and negative $1.9 million and fiscal 2020 revenue and EBITDA of $42.0 million and $1.1 million. His $2.25 target represents a projected 12-month return of 71.6 per cent at the time of publication.
Well Health last reported its earnings on August 22, where its second quarter ended June 30, 2019, featured revenue up 258 per cent year-over-year to $7.4 million and an adjusted EBITDA loss of $556,000 compared to a loss of $287,000 a year prior. Keywood was calling for revenue of $6.8 million and EBITDA of negative $900,000.
Disclosure: Nick Waddell and Jayson MacLean of Cantech Letter own shares of WELL Health and the company is an annual sponsor of the site.