WELL Health gets new $9.00 price target at Beacon Securities

The run-up in its share price has been phenomenal but there still more upside to WELL Health Technologies (WELL Health Technologies Stock Quote, Chart, News TSX:WELL), according to Beacon Securities analyst Gabriel Leung, who delivered an update to clients on the company and stock on Thursday.

Leung said he has greater confidence in the health tech company’s ability to exceed his growth expectations over the near term.

Vancouver-based WELL Health owns and operates a portfolio of primary healthcare facilities, has Canada’s third-largest electronic medical records (EMR) business and operates a telemedicine platform called VirtualClinic+. WELL’s stock has vaulted almost 400 per cent in 2020 after finishing 2019 up 283 per cent.

The company announced on Thursday the completion of a previously announced bought deal financing of approximately 11.9 million shares including approximately 1.6 million in over-allotment for proceeds of about $80 million. WELL said it will be using the funds to acquire more clinical and digital assets as well as general working capital. (All figures in Canadian dollars except where noted otherwise.)

“We have a substantial and compelling pipeline of potential acquisition opportunities and these funds will allow us to continue on our journey to consolidate and modernize clinical and digital assets within the primary healthcare sector, using a disciplined capital allocation strategy,” said CEO Hamed Shahbazi in a press release.

That makes two financing rounds closed in less than a month, with a $23-million private placement closing on September 30, that one subscribed by a group of investors including Hong Kong business leader and existing shareholder Li Ka-shing. Leung estimated WELL’s bankroll currently at about $120 million, with no debt and about 155 million basic shares outstanding, although that amount doesn’t include the company’s pending acquisition, announced on September 1, of a majority stake in US telehealth company Circle Medical for US$14 million in cash and shares.

On top of that news, WELL recently held its virtual AGM where management provided a business update. Leung commented on this by saying, “For us, one of the most interesting comments was that the company was comfortable with consensus estimates (for CY20 and CY21) and that it had an M&A pipeline, which could help it to exceed current expectations. The company also noted that it continues to see good value in clinic assets, although telehealth was getting pricey (and WELL will not chase these valuations),” Leung wrote.

With the update, Leung has reiterated his “Speculative Buy” rating while raising his target price from $6.00 to $9.00, which at the time of publication represented a projected one-year return of 17 per cent.
Leung said, “Given the strong organic macro backdrop, along with WELL’s equally strong balance sheet and pipeline of M&A opportunities (which we believe will help to company to exceed our forecast model), we are compelled to increase our target to $9.00 (was $6.00) while maintaining our Speculative Buy rating.”

On the financials, Leung is expecting WELL to generate fiscal 2020 revenue and EBITDA of $44.1 million and negative $1.3 million, respectively, and fiscal 2021 revenue and EBITDA of $52.2 million and $1.7 million, respectively.

Recently, WELL announced the creation of a now fifth subsidiary, called WELL Health Allied Care Inc, to focus on investing opportunities in the allied health fields such as physiotherapy, rehabilitation, occupational therapy, chiropractic, dietary, mental health counselling and sleep-related services.

WELL also launched a digital health app marketplace to connect digital health technology companies and developers to the WELL’s healthcare network, which includes over 2,000 primary healthcare clinics and 10,000 physicians. The revenue model for apps.health will be similar in function to the Apple App Store, with WELL collecting a 30 per cent commission.

WELL said the apps.health marketplace is integrated with the OSCAR Pro EMR interface and will give health practitioners a destination to find digital tools already reviewed and curated by WELL and at the same time give third-party app developers a place to market their products to WELL’s network.

“To our knowledge apps.health is the first comprehensive offering of a digital health marketplace for EMR integrated apps in Canada that allow digital health software and technology companies to showcase their capabilities and provide a call to action,” said Shahbazi in a September 29 press release. “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.”

WELL last released its quarterly results on August 11 when its second quarter 2020 financials featured revenue of $10.6 million compared to $7.4 million a year earlier and an adjusted EBITDA loss of $543,000 compared to a loss of $556,000 a year earlier.

Gross profit was $4.2 million and represented an 88 per cent year-over-year growth. WELL said its 43-per-cent quarterly increase in revenue came from digital services revenue of $2.3 million, a 1212-per-cent increase over a year earlier.

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