WELL Health will have an excellent 2021, Stifel says

Expect WELL Health Technologies (WELL Health Technologies Stock Quote, Chart, News, Analysts TSX:WELL) to have an active start to the year, says Stifel GMP analyst Justin Keywood, who published a report for clients on Monday where he reiterated his “Buy” rating and $10.00 target price.

Vancouver-based WELL Health operates 27 primary healthcare clinics, has Canada’s third-largest electronic medical records (EMR) business serving over 2,000 medical clinics, operates a national telehealth service and provides digital health, billing and cybersecurity-related technology solutions.

WELL finished 2020 up 416 per cent to $8.05 per share but Keywood sees more room to grow in 2021.

“We see WELL as having a catalyst-rich start to 2021 with still a wide pipeline of potential assets to acquire (100+), including about ten in a late or LOI stage. WELL also often uses its shares in part to acquire, and recent strength late last year indicates near-term M&A, in our view,” Keywood wrote.

“As a result, we estimate 80 per cent to 100 per cent-plus year-over-year sales growth over the next several quarters, supporting higher valuation. WELL generally trades at a premium valuation, but has grown into the premium recently with seven acquisitions that closed in Q4. WELL now trades at ~9x 2022E sales, and we see an attractive entry point, ahead of more M&A and quarterly results,” said Keywood.

As an example of that activity, WELL announced on Monday completing its acquisition of Toronto-based Adracare, an omni-channel practice management platform serving over 6,800 allied healthcare practitioners in five countries, with a focus on mental heath, medicinal cannabis and physical therapy.

WELL said Adracare’s platform booked over 93,000 appointments in the last quarter supporting more than 179,000 patients, that the company should be immediately accretive to WELL and that it should generate annualized revenue of close to $2 million and be EBITDA-positive. WELL paid $4.75 million in cash for the acquisition.

“Adracare’s unique telehealth enabled practice management platform has already demonstrated strong success with some of Canada’s most recognized brands. Adracare helps WELL expand into net new markets such as mental health and medicinal cannabis,” said WELL Health Chairman and CEO Hamed Shahbazi in a press release. “Additionally, we are thrilled to be growing WELL’s footprint of customers beyond North America into the United Kingdom, Australia and New Zealand where Adracare is supporting customers.”

WELL last reported its financials in mid-November where third quarter 2020 revenue came in at $12.2 million, up 50 per cent year-over-year, and gross profit was a record $5.0 million, up 75 per cent year-over-year. Adjusted EBITDA was a loss of $153,488 compared to a loss of $512,076 a year earlier. Management said earnings were negatively impacted over the quarter by WELL’s marketing and promotion program related to its telehealth program and the launch of its apps.health marketplace. WELL ended the quarter with over $100 million in cash against no debt, after completing a $23-million private placement in September and an $80.5-million bought deal on October 22.

WELL said its strong Q3 numbers were driven by an increase in its clinical patient services revenue due to a return to physical in-clinic consultations after COVID-19-related lockdowns, while at the same time its virtual care-related revenue continued to improve over the quarter.

For the upcoming Q4, Keywood said he’s calling for sales up 80 per cent year-over-year to about $18 million (the consensus estimate is $16 million). For the full 2021 year, the analyst thinks WELL will generate sales of $100 million (WELL has a disclosed revenue run-rate of $94 million) and EBITDA of $6.3 million, rising in 2022 to $124.9 million and $12.5 million, respectively.

“We forecast some M&A in our 2022 estimates as well, given the still wide pipeline (100 assets) and fragmented markets to consolidate. Importantly, we see WELL as having good and aligned management as reducing execution risk,” Keywood wrote.

For his investment thesis, Keywood pointed to five key areas, starting with adding scale, where WELL is expected to acquire or build more clinics (Keywood is forecasting about 28 clinics by the end of the year); acquiring tech assets, where WELL’s M&A pursuit “has become much more valuable” due to changes in telehealth billing codes, according to Keywood; technology development and testing, where WELL’s 600,000 patient visits per year give the company a unique testing ground; organic expansion, where WELL can roll out its acquired and developed technologies across Canada and the US and add doctors to its clinics; and strong management and future strategic value, where Keywood pointed to management’s track record of value creation, 25-per-cent management and insider ownership, and, in a longer-term scenario, Keywood said part or all of WELL’s assets could be acquired by private equity or larger strategic companies.

At press time, Keywood’s $10.00 target represented a projected one-year return of 25.3 per cent.

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