Newtopia has a 96 per cent upside, says Mackie

Analyst Yue Ma of Mackie Research delivered an update to clients on Newtopia (Newtopia Stock Quote, Chart, News, Analysts, Financials TSXV:NEWU) Friday, calling the health tech company an interesting but overlooked name in the field. Ma reiterated his “Speculative Buy” rating and $1.10 price target for Newtopia, which at press time translated to a projected 12-month return of 96 per cent.

Mackie hosted calls with Newtopia management and investors last Thursday, with Ma coming away confident in the company’s “decent growth potential” down the road.

Newtopia is a disease prevention company offering hyper-personalized digital solutions for customers at-risk for chronic diseases. The company uses genetic testing, virtual care, digital tools, smart devices and analysis to personalize treatment and focus on building habit-changing practices among at-risk populations.

The company, which closed on an over-subscribed $7.5-million bought deal this past October and followed it up with a $5-million senior secured operating facility in December, announced on December 10 the findings of a clinical trial in partnership with US insurance company Aetna featuring 1,390 Aetna staff with an increased risk of metabolic syndrome, a cluster of conditions which increase the risk of heart disease, stroke and type 2 diabetes such as high blood pressure, high blood sugar, excess body fat around the waist and abnormal cholesterol or triglyceride levels.

The study found that Newtopia’s habit change platform resulted in sustained employee engagement of 50 per cent over a one-year course and “significantly” reduced body weight by 4.3 per cent in 76 per cent of participants, with risk factors of waist circumference, triglycerides and cholesterol all showing significant improvement compared to the control group.

Newtopia concluded that the program resulted in a positive return of investment for Aetna of US$1,464 per participant per year, while an actuarial study based on an economic model estimated Newtopia’s program could save US$1,700 a year for a Medicare Advantage member using the program for at least 12 months.

Newtopia should have data later this year on another human trial in partnership with one of its largest clients, which according to Ma should “further validate” Newtopia’s programs and benefit the company’s marketing to new potential clients.

“Newtopia has been working diligently to sign contracts with new clients (self-insured employers in the US),” said Ma in his report. “The company has closed several deals but has not officially launched its habit-changing programs with those newly secured clients due to COVID-19. We expect Newtopia to announce those new contracts in the foreseeable future. Management expects the company should achieve cash flow breakeven by the end of 2021.”

The company, which began trading on the Venture Exchange last May in a direct listing, has seen its share price take a hit in recent months, going from the $1.00-$1.10 range to now below $0.60.

Ma said part of the reason for the drop relates to the disbanding of US healthcare joint venture Haven, formed three by powerhouse companies Amazon, Berkshire Hathaway and JPMorgan Chase. The JV was expected to make an impact on the US scene by bringing lower health coverage costs to employees. The joint venture dissolved in January, putting pressure on stocks like Newtopia, which has JPMorgan as a client.

But Ma argued there shouldn’t be any linkage between Haven and Newtopia.

“Newtopia’s stock has been reacting negatively to the news likely in that the market wrongfully considers Haven was a client of Newtopia’s. It should be pointed out that although JPMorgan is the company’s client, Haven did not sign any contracts with Newtopia in the past – therefore, there should be no financial impact on Newtopia from the disbanding. Newtopia still has business opportunities with Amazon and Berkshire Hathaway going forward,” Ma wrote.

Ma is calling for Newtopia to generate full 2020 revenue and fully diluted EPS of $11.4 million and negative $0.10 per share, respectively, 2021 revenue and EPS of $15.2 million and negative $0.04 per share, respectively, and 2022 revenue and EPS of $20.3 million and negative $0.01 per share, respectively. Earnings should turn to positive $0.01 per share by 2023, according to Ma.

Newtopia last reported earnings in mid-November, where the company generated third quarter revenue up 99 per cent year-over-year to $2.4 million and gross profit up 182 per cent to $1.2 million. Gross margin went from 35 per cent a year ago to 49 per cent.

“We’re continuing to see strong engagement levels as our client organizations and their employees recognize the value of our tech-enabled service and habit-changing platform throughout the pandemic, with over 90 per cent of our revenue coming from engagement fees in the quarter,” said Newtopia CEO and founder Jeff Ruby in the Q3 press release on November 12.

“With both an oversubscribed and upsized bought deal offering completed and a substantial new operating facility recently secured, Newtopia has bolstered its balance sheet with the financial resources to continue to innovate for our clients and their employees,” he said.