Echelon raises target on WELL Health to $9.50

In an update to clients on Tuesday, Goff reiterated his Top Pick status for 2020 Q3 and “Speculative Buy” recommendation for WELL while raising his target price from $6.80 to $9.50, which at press time represented a projected one-year return of 34.8 per cent.

WELL Health, which owns medical clinics, has Canada’s third-largest Electronic Medical Records (EMR) business and operates a virtual telehealth platform, announced on Monday the launch of apps.health, a marketplace and innovation hub for digital health third-party developers to offer their healthcare software to the OSCAR community (OSCAR, or Open Source Clinical Application and Resource, is a leading Canadian EMR software).

At present, apps.health has about 20 health apps from 12 different publishers. WELL CEO Hamed Shahbazi said the platform is to his knowledge the first such marketplace in Canada.

“Our objective with apps.health is to provide an environment where clinicians and app publishers can meet and transparently discover opportunities to modernize and digitize practices across the country,” Shahbazi said in a press release.

Goff said WELL is looking at about a 30 per cent revenue share from third-party apps, closer to 50 per cent royalties from apps developed by platforms where WELL has ownership rights and margins in excess of 80 per cent for internally developed apps.

“By owning the marketplace, WELL has the ability to monitor top performers while owning a platform to showcase its own or partly owned apps. We note that WELL’s acquisition of the cyber security firm Cycura Inc, brought the Company the internal capability to screen apps prior to accepting them into the marketplace,” Goff said.

In his report, Goff also commented on WELL’s recent announcement of a fifth operating segment, WELL Allied, which will focus on opportunities in allied health fields such as physiotherapy, rehabilitation, occupational therapy, chiropractic, mental health counselling and sleep-related services.

“We look for the Company to execute against its pipeline of acquisition candidates with emphasis on allied services. We continue to forecast a sustained cycle of accretive acquisitions as WELL takes advantage of the significant public versus private valuation gap,” Goff wrote.

Goff said it’s still early days for the telehealth sector, with the analyst estimating a $2-billion market in Canada alone.

“This scenario’s potential reflects a minority share of the broader target considering the potential for unregulated services, technology provisioning and WELL Health’s US expansion,” Goff added.

On WELL’s future, Goff wrote, “We are encouraged that the accelerated adoption of telehealth will support positive revenue and valuation considerations. We look for acquisitions to supplement the organic growth of the clinic portfolio pushing the overall revenue growth to higher levels.”

Looking ahead, the analyst is calling for WELL to generate 2020 revenue and adjusted EBITDA of $44.9 million and negative $1.2 million, respectively, and 2021 revenue and adjusted EBITDA of $76.8 million and $4.2 million, respectively.

On Wednesday, WELL Health announced the closing of a $23-million private placement by a group of investors led by Hong Kong billionaire Mr. Li Ka-shing. WELL said the proceeds will go towards completing the previously announced acquisition of a majority of share of US telehealth company Circle Medical Technologies along with general working capital.

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