Paradigm Capital launched coverage of WELL Health Technologies (WELL Health Technologies Stock Quote, Chart, News TSX:WELL) on Thursday with a “Buy” rating and $4.10 target, with analyst Daniel Rosenberg judging WELL to be in the early innings of establishing itself as a technology leader in the digital healthcare sector.
Vancouver-based WELL Health operates 20 health clinics with about 180 clinicians but a reach that extends across almost 2,000 clinics through its Electronic Medical Records business, the third-largest in the country, which ultimately lands them at about 10,000 clinicians.
WELL has been active in M&A, with 12 acquisitions since 2018 and three equity investments, helping to drive rapid growth for the company, according to Rosenberg, who pointed to WELL’s more recent moves to grow its tech stack through acquisitions such as cybersecurity solutions, AI-guided office assistants and telemedicine.
“The company has built a very interesting set of technologies that can be leveraged into a fragmented market of clinics. The reach through some of its technologies gives rise to significant cross-selling opportunities into a growing footprint (~1,900 clinics currently). With a rapidly growing footprint, many of these opportunities are dependent on WELL’s continued expansion, which makes them hard to value at this time. We believe M&A activity will continue to expand this customer base and bring significant value in cross-selling activity over the long term,” Rosenberg wrote.
Looking ahead, the analyst sees more disciplined M&A from WELL, whose transactions have historically ranged from less than $1 million to more than $10 million. Rosenberg estimates WELL’s current cash at $22 million, representing ample dry powder to pursue other targets, although larger acquisitions may necessitate additional capital.
“We believe targets will be other technologies that emphasize remote care, clinics that expand the company’s footprint across Canada and the few remaining OSCAR-based EMR providers that are not yet on WELL’s platform,” Rosenberg said.
WELL’s telemedicine assets include its VirtualClinic+ platform, the adoption of which has been accelerated by the COVID-19 pandemic, a secular tailwind, according to Rosenberg, who noted that WELL’s platform reached a peak of 1,000 appointments per day by May and is now hitting that multiple times a week.
“We believe WELL’s VirtualClinic+ is one of the top six telehealth platforms in Canada along with TELUS, Loblaw, Maple, Dialogue and Tia Health. Incidentally, Tia Health is operated by Insig, and WELL is the largest shareholder in Insig, so WELL has two of the top six telehealth platforms in the country,” Rosenberg wrote.
On the telehealth front, Rosenberg said there’s a massive market in Canada ready for change, with five million Canadians currently without a family doctor and, pre-pandemic, only about seven per cent of visits to a physician occurring digitally in Canada compared to in the United States where 50 per cent of all patient touch-points occur digitally.
“There is a large opportunity catch-up by leveraging technology to optimize the primary care system. WELL is the best positioned player in Canada to capitalize on this opportunity,” Rosenberg said.
To iniitiate his coverage, Rosenberg forecasted fiscal 2020 revenue and adjusted EBITDA of $43.5 million and negative $0.5 million, respectively, and fiscal 2021 revenue and adjusted EBITDA of $56.4 million and $4.4 million, respectively.
At press time, Rosenberg’s $4.10 target represented a projected 12-month return of 20 per cent.
Disclosure: Jayson MacLean and Nick Waddell own shares of WELL Health and the company is an annual sponsor of Cantech Letter.