So far, investors have been rewarded by Well Health Technologies (Well Health Technologies Stock Quote, Chart, News TSXV:WELL), which is up 220 per cent year-to-date, but there is still room for more, says GMP Securities analyst Justin Keywood, who reviewed the company’s latest quarter in a client update on Wednesday.
Vancouver-based Well Health has both a primary healthcare facilities business and an electronic medical records (EMR) business. WELL released its third quarter ended September 30, 2019, financials on Tuesday, reporting revenue climbing 328 per cent to $8.2 million and an adjusted EBITDA loss of $512,000.
Over the quarter, WELL acquired OSCAR-based EMR software and services company KAI and also completed a private placement with gross proceeds of $15 million, while subsequent to the quarter’s end, WELL completed the acquisition of a 51-per-cent ownership stake in SleepWorks.
In his comments, chairman and CEO Hamed Shahbazi said that WELL continues to execute on its acquisition growth strategy.
“We completed the acquisition of KAI and subsequently formed the WELL EMR Group encompassing all of the Company’s current and future EMR assets where we are seeing strong organic growth. With the proposed acquisition of OSCARwest, we continue to further consolidate the OSCAR-based EMR market and strengthen our position as the third largest EMR service provider in Canada (based on our research),” Shahbazi said, in a press release.
Keywood called the Q3 results in-line with expectations.
The $8.2-million in sales was above his $8.0-million forecast and adjusted EBITDA of $512,000 was consistent with his estimate. EPS of negative $0.05 per share was lower than expected, however, related to special warrant expenses, the onboarding of new employees and other integration costs — all reasonable items to adjust for, in Keywood’s opinion.
“We expect margins and cash generation to progress higher as M&A continues, where WELL has $20 million in cash to support expansion plans. WELL also mentioned a very robust pipeline for M&A on its conference call, where it will continue to target both clinic and digital assets in expanding scale,” wrote Keywood.
“WELL has made almost ten transactions since 2018 to create a unique business model of ~20 doctor clinics with an about ten per cent EMR market share in Canada, along with other strategic investments,” he 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,” Keywood said.
Valuation-wise, the analyst says that 6x sales is reasonable with WELL’s growth profile of about 100 per cent two-year CAGR, which de-risks the potential for a valuation reset, Keywood claims.
The analyst is calling for fiscal 2019 revenue and EBITDA of $31.7 million and negative $1.9 million and for fiscal 2020 revenue and EBITDA of $42.1 million and $2.0 million.
He is maintaining both his “Buy” recommendation and $2.25 per share target price, which represented a projected return of 56.0 per cent at press time.
Disclosure: Nick Waddell and Jayson MacLean own shares of WELL Health and the company is an annual sponsor of Cantech Letter