Protech Home Medical has colossal upside, Beacon says

Protech Home Medical (Protech Home Medical Stock Quote, Chart, News TSXV:PTQ) ended an eventful year on a solid note, according to Beacon Securities analyst Doug Cooper who reviewed the company’s Q4 financials in an update to clients on Wednesday. With his note, Cooper reiterated his “Buy” recommendation and C$2.50 price target, saying PTQ could be a likely takeout target.

Protech, which provides in-home monitoring and disease management services in the US, released its fourth quarter 2019 financials on Tuesday, showing Q4 revenue of $19.5 million, an eight-per-cent uptick from a year earlier, and adjusted EBITDA of $3.7 million, down from 5.2 million a year prior. (All figures in US dollars except where noted otherwise.)

For the year, the company served 76,146 unique patients compared to 69,500 in 2018, while continuing to grow its sales force across ten states. Q4 2019 saw Protech continue its M&A program, in particular, in picking up two respiratory services companies, Cooley Medical and Acadia Medical.

In his quarterly comments, Protech CEO and chairman Greg Crawford said Protech has shown its ability to acquire businesses at attractive multiples and integrate successfully.

“Through robust organic growth, and with the two most recent acquisitions consummated in late calendar year 2019, Protech expects to exceed $100 million in annualized revenue at some point in fiscal 2020. In addition to our continuously improving financial results, our balance sheet is extremely healthy with a sizeable cash balance allowing us to focus our attention on larger, more transformative acquisitions,” said Crawford in a Tuesday press release.

The Q4 ended up a little lighter than Cooper’s predictions, but the analyst nonetheless pointed to what he called solid organic growth and margin profile (19 per cent margin for the quarter). The analyst noted PTQ ended the period with cash of $13 million versus just $4 million a year earlier and working capital of $12 million versus $4.6 million last year.

“FY19 was a roller-coaster year for the company wherein it started its turnaround from FY18 strongly only to be hit with the cyber-crime, then it recouped the money and exited the year with the strongest balance sheet in its history and thus the ability to finance its FY20 strong organic growth coupled with its M&A program,” Cooper wrote.

Cooper says the stock is trading at 4.5x his EBITDA forecast, which represents a 50-per-cent discount to its peer group and makes PTQ an attractive potential acquisition.

“We continue to believe such a valuation gap will be narrowed upon continued execution by PTQ. If not, we also believe that PTQ itself could become a very accretive acquisition for someone such as AdaptHealth, who has publicly stated its goal of acquiring $100 million in revenue per year,” Cooper wrote.

The analyst thinks Protech will generate fiscal 2020 revenue and EBITDA of $101.1 million and $19.2 million, respectively, for an adjusted EPS of $0.06. At press time, his C$2.50 target represented a projected 12-month return of 172 per cent.