WELL Health is a potential take out target, Stifel GMP says

Telehealth is just getting started across Canada, which is good news for WELL Health Technologies (WELL Health Technologies Stock Quote, Chart, News TSX:WELL), according to Stifel GMP analyst Justin Keywood, who on Wednesday provided clients with an update on the company in which he noted that the company’s assets could become of interest to a potential suitor.

Vancouver-based WELL Health has about 20 primary care clinics, an electronic medical records business with about 15 per cent market share in Canada and a bustling telehealth platform called VirtualClinic+.

The company, which was founded by CEO Hamed Shahbazi, previously of Tio Networks, and has backing from Hong Kong entrepreneur Li Ka-shing, has seen its share price climb from sub $0.50 early last year to Wednesday’s close of $2.27 a share.

With the dawn of COVID-19 era more focus in healthcare is now being placed on telemedicine as a way for patients to connect with physicians while adhering to social distancing norms. The growth of telehealth in Canada became more of a reality starting in March when provinces like BC and Ontario approved billing coeds for telehealth physician visits, a development which will continue beyond the current crisis, Keywood said.

“We see telehealth as here to stay, which greatly increases the opportunity set for innovation to bridge patient care virtually, where WELL is in a strong position to capitalize,” Keywood wrote.

On March 2, WELL launched VirtualClinic+, a platform connecting patients to doctors through video, phone and secure messaging, where patients outside of WELL’s clinics who do not have a doctor are also able to use the platform.

“WELL was already evaluating over 100 health-tech assets earlier this year with ten in late stages of due diligence and has acquired ten assets since 2018. We believe that WELL will acquire and integrate more assets into its platform, where this strategy is more valuable with millions of Canadians now using telehealth versus thousands prior.

Combined, we expect WELL to continue a high growth trajectory with a solid management team and $25 million in cash to support the strategy, leading to a higher multiple,” Keywood said.

Expanding its reach, WELL announced on March 26 a $5.94-million strategic investment in Toronto-based telehealth tech company Insig Corporation, a company with whom WELL had already been working and with whom it formed a strategic alliance agreement to launch WELL’s VirtualClinic+, with Shahbazi joining Insig’s board of directors.

“We are thrilled to invest in and get behind what we believe is one of the most exciting telehealth platforms on the continent,” said Shahbazi in a press release. “Together with VirtualClinic+, WELL and Insig are already changing the Canadian telehealth ecosystem. We are rapidly on-boarding healthcare providers and supporting them in taking their practices virtual.”

As to valuation, Keywood compared WELL to other serial consolidators in the Canadian tech sector such as Enghouse, Descartes and Constellation Software, saying that while those companies are much larger than WELL, the latter’s growth profile merits consideration and thus, a 6x sales multiple which applies to the larger serial acquirers should fit for WELL, too.

“WELL tripled its business in 2019 with high growth continuing in 2020 and beyond. This de-risks the potential for a reset in valuation on results to a certain extent but also highlights multiple expansion on the rapid recurring revenue growth,” Keywood said.

Keywood forecasts 2020 revenue and EBITDA of $40.2 million and $0.8 million, respectively, and 2021 revenue and EBITDA of $49.6 million and $4.5 million, respectively. With the update, Keywood has reiterated his “Buy” rating and $2.60 target, which at press time represented a projected return of 18.2 per cent.

The analyst says one route WELL Health investors should be aware of is a takeout. He ranks the company as an attractive pickup for some household names.

“Although early days, we see WELL as setting up for a possible exit of part or all of its operations in a longer-term scenario,” Keywood said. “WELL’s clinic assets could be attractive to private equity with an EMR customer base suitable for Telus Health or Loblaw. The strategic nature of these assets could imply a higher multiple.”

Disclosure: Jayson MacLean and Nick Waddell own shares in WELL Health and the company is an annual sponsor of Cantech Letter.