Beacon Securities analyst Doug Cooper made the case for Protech Home Medical (Protech Home Medical Stock Quote, Chart, News TSXV:PTQ) in an update to clients on Monday, saying the stock is currently trading at a significant discount to its peer group.
Protech Home Medical, which provides in-home monitoring and disease management services, is focused on the fragmented and developing market of small, privately-held US companies servicing chronically ill patients with multiple disease states, with the company’s aim to identify profitable, annuity-based companies to acquire their patient databases and technical expertise.
PTQ on Monday announced that it has entered into a $20-million senior credit facility with financial holding company CIT Group. The agreement has a four-year maturity and is the first credit facility for Protech.
Protech CEO and chairman Greg Crawford called the event momentous for the company, saying the credit facility will help PTQ get to the next stage of growth, while CFO Hardik Mehta said,
“In this low interest rate environment, we are confident that the credit facility, with its attractive cost of capital, will allow Protech to accelerate its acquisition pace and augment the size of its acquisition targets, both with a disciplined focus on achieving greater levels of accretion. Our team looks forward to continuing and building upon its relationship with CIT,” Mehta said in a press release.
Cooper said the credit facility speaks to PTQ’s strengthening balance sheet and credit quality as well as its cash flow.
“We do not believe it a coincidence that this credit facility comes on the heels of its strengthened balance sheet, improving financial results and especially its recently released Q3/FY20 results in which PTQ translated its EBITDA to material free cash flow for the first time,” Cooper said.
“Looking at the recent events, it is clear that PTQ has broken-out to the next level in terms of financial performance, yet its share price continues to trade at less than 5x EBITDA, a valuation that is a 50 per cent-plus discount to its peer group,” Cooper wrote.
Protech delivered third quarter results on August 18, showing $25.9 million (up 17 per cent year-over-year and up seven per cent quarter-over-quarter) and a record EBITDA on an absolute basis of $5.54 million, with a record margin of 21.4 per cent and $1.2 million in free cash flow.
In other recent news, Protech closed on August 31 on the acquisition of Health Technologies Resources, a Midwest respiratory company with trailing 12-month revenue of $5.5 million and EBITDA of $1.7 million. PTQ also announced recently a letter of intent to acquire a company in the Southeastern US, one which Cooper said would take Protech’s revenue run-rate to about $125 million with EBITDA of $28 million.
“We continue to be very pleased with the progress PTQ has made on a number of fronts as noted above. While we have not changed our forecast, we believe we have an upward bias to both our forecast and target price based on the closing of the LOI as well as future M&A transactions,” Cooper wrote.
With his report, Cooper maintained his “Buy” recommendation and C$2.70 target price, which at press time represented a projected 12-month return of 90 per cent. (All figures in US dollars except where noted otherwise.)