WELL Health Technologies is still undervalued, Laurentian Bank Securities says

On Thursday, Agostino initiated coverage of WELL with a “Buy” recommendation and $2.50 price target which at press time translated to a projected 12-month return of 48 per cent.

Vancouver-based WELL Health is a medical services provider through 20 clinics (19 wholly-owned) along with providing OSCAR-based electronic medical records (EMR) technology for about 1,446 clinics in BC and Ontario, supporting about 8,280 physicians. Following on a number of acquisitions in 2019, WELL is now the third-largest EMR provider in Canada after Loblaw (15,000 physicians) and Telus Health (23,000 physicians).

In his coverage initiation report, Agostino noted that physician spending accounts for about 15.1 per cent (or about $40 billion) of Canada’s healthcare budget and is growing at 3.5 per cent annually, while for EMR, he estimates the Canadian market to be worth between $250 and $350 million annually.

The analyst compared WELL to Loblaw and Telus, saying that for their EMR solutions, Telus Health charges $395 per month for a full-time physician and Loblaw charges $300 for full-time physicians and an incremental $30 for support staff, whereas for “full-time equivalent” physicians, WELL charges $150-200 per month and a lower rate for part-time or locum physicians, who represent the bulk of its current EMR physician client base.

Agostino attributed the difference to WELL’s open-source technology which entails lower legacy R&D platform expenses, lower intellectual property (IP) costs and overall lower total cost of ownership.

“With ~80 per cent EMR adoption in Canada and a still fragmented market, we see opportunity for further growth with WELL’s open-source platform that offers a pricing benefit relative to its larger competitors – TELUS Health and Loblaw,” Agostino wrote.

On the clinic front, WELL’s M&A has made it currently the fourth-largest owner/operator of government-funded clinics in Canada and the largest in BC. Concerning both the clinical and digital markets, Agostino said Ontario represents a sizeable growth frontier for WELL. He expects revenue to grow at a two-year CAGR of over 30 per cent (to 2021) on three per cent annual organic growth for clinics and 15 per cent for digital services and through further M&A.

“Despite a higher growth profile, WELL only trades at 4.0x NTM EV/Sales versus high-growth Medical Technology companies at >5.7x,” Agostino wrote. “WELL is led by an entrepreneurial management team. Near-term catalysts include M&A and the launch of new clinical and digital services. Notable risks include regulations, cybersecurity, competition and the economy.”

For fiscal 2020, Agostino thinks WELL will generate net sales of $45.3 million and EBITDA of $0.9 million while in fiscal 2021 he is forecasting net sales of $54.4 million and $2.7 million.

Disclaimer: Cantech’s Nick Waddell and Jayson MacLean own shares of Cantech Letter and the company is an annual sponsor of the site.