A robust healthcare marketplace is putting Well Health Technologies (Well Health Technologies Stock Quote, Chart, News TSX:WELL) in a great position, says analyst Daniel Rosenberg of Haywood Capital Markets, who in an update to clients on Monday upped his price target for WELL from $2.00 to $2.50 while maintaining his “Buy” rating.
Vancouver-based Well Health Technologies, which operates primary healthcare facilities along with an Electronic Medical Records (EMR) business, announced on February 3 the closing of a previously announced acquisition of Trinity Healthcare Technologies (THT), Canada’s second-largest OSCAR EMR Service provider.
WELL said the acquisition puts the company’s EMR Group’s footprint to over 1,000 clinics in Ontario and 1,446 clinics nationwide. Canada’s number three EMR company, WELL has so far completed five acquisitions in the space.
“We are very pleased to welcome THT into the WELL EMR family,” said Hamed Shahbazi, Chairman and CEO of WELL, in a press release. “THT has been a well-recognized innovator and EMR service provider with a strong base of clients in the fields of primary care, ophthalmology and fertility amongst others. To our knowledge, with the acquisition of THT, more than 10 per cent of all physicians in Canada who work in outpatient clinics are now supported by a WELL EMR solution.”
In his report, Rosenberg points out that Trinity had more than $2 million over the last twelve months with over ten per cent in EBITDA margin. The analyst said that as tech becomes a larger part of WELL’s consolidated revenue, the higher-margin tech business should make for improved profitability in the long term.
“WELL continues to demonstrate an ability to execute on disciplined M&A resulting in exceptional growth and we see a long pathway of targets for it to continue its shopping spree. The recent purchase of Trinity Healthcare is WELL’s ninth acquisition in less than two years and its fifth EMR acquisition to date. We have seen increased interest and activity in the tech/healthcare sector. Increases in valuation multiples among publicly traded consolidators, strong market demand and a key comp south of the border suggest that WELL warrants higher valuation multiples,” Rosenberg wrote.
For comparison’s sake, Rosenberg points to US healthcare clinic company One Medical (1Life Healthcare), which has seen its share price rise since its IPO on January 31. The analyst clocks the company’s valuation at 13.9x EV/LTM Revenue and says that a similar valuation is “readily attainable” by WELL in coming years.
WELL’s balance sheet also looks good, said Rosenberg, who pegs its cash on hand at $11 million, thus leaving it plenty of room for further M&A, although large M&A could require additional capital resources, he says.
“We expect continued M&A activity with EMR providers, physician clinics and online booking and telemedicine/ virtual care technologies,” Rosenberg said.
“WELL is in the early stages of leveraging technology to improve outcomes and drive operational efficiencies in the ripe healthcare sector. We believe the multiple expansion will occur as WELL continues to consolidate and introduce new technologies into its base, and ultimately drive outsized shareholder returns,” he added.
Rosenberg thinks WELL will generate calendar 2020 revenue of $49.0 million and EBITDA of $1.7 million and calendar 2021 revenue of $56.7 million and EBITDA of $3.6 million. The analyst estimates that WELL is trading at 3.6x EV/Revenue for his calendar 2021 estimates versus its peer group average at 2.9x EV/Revenue of calendar 2020 estimates, and he says that the premium is warranted given management’s track
record of growth through disciplined M&A.
Rosenberg’s new $2.50 target represented a projected 12-month return of 32 per cent at the time of publication.
Disclosure: Nick Waddell and Jayson MacLean own shares of WELL Health Technologies and the company is an annual sponsor of Cantech Letter.