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WELL Health’s big run is not over, Stifel says

WELL HealthThe run isn’t over yet for WELL Health Technologies s (WELL Health Technologies Stock Quote, Chart, News, Analysts, Financials TSX:WELL), according to Stifel GMP analyst Justin Keywood, who delivered an update to clients on the company and stock on Wednesday. Keywood kept his “Buy” rating but lifted his target from $10.00 to $13.50, which at the time of publication represented a projected one-year return of 59.4 per cent.

Vancouver-based WELL Health operates in a number of verticals. It owns and operates 27 primary healthcare clinics, has Canada’s third-largest electronic medical records (EMR) business currently serving about 2,200 clinics, has telehealth services in Canada and the US, along with cybersecurity and allied health assets and a health applications platform.

The company on Wednesday announced the closing of an upsized $302.5-million equity offering, one which was led by WELL investor Li Ka-shing and included WELL’s CEO, board and senior management team along with a number of institutional investors. (All figures in Canadian dollars except where noted otherwise.)

The proceeds from the equity raise will go towards funding WELL’s acquisition, announced on February 8, of CRH Medical, a primarily US-focused gastroenterology and anesthesia company with business in 13 states and partners in 48 states. WELL said the US$292.7-million deal for CRH (WELL is paying US$4.00 per share in cash) will result in synergies between the two companies’ operations, with CRH expected to be accretive to WELL this year.

On the completion of the equity offering, WELL CEO Hamed Shahbazi said in a press release, “[CRH] is a unique asset that owns strong IP and, once closed, it will generate significant cash flow for WELL for many years and meaningfully elevate our capital allocation program across other attractive healthcare and healthcare-technology segments.”

“In addition, the proposed acquisition represents a significant opportunity for WELL to provide digital tools, tech-enablement and data protection to more than 3,000 gastroenterologists in the United States. We look forward to closing this strategic acquisition which is also expected to be highly accretive to WELL, representing approximately 120-per-cent revenue accretion and 180-per-cent EBITDA accretion on a per share basis in 2021,” Shahbazi said.

On the CRH acquisition, Keywood said it’ll add foundational cash flow to support the next leg of growth for WELL. The analyst pointed to a similar approach taken by the company in 2018 when it acquired 19 healthcare clinics in BC which then acted as a platform to leverage greater growth, resulting in almost new 20 acquisitions, a more-than-tripling of revenue from $30 million to a run-rate of over $100 million and a market cap increase from $35 million to now about $1.5 billion.

“We believe this run is not over, as WELL still has a wide pipeline for M&A with ten near-term LOIs and an expected Tier 1 US exchange listing to act as catalysts,” Keywood wrote.

“WELL has created a unique business model with what would be seven distinct verticals with CRH and a technology focus. Each of WELL’s current verticals could exceed $100 million in sales or $600 million in total and CRH would add C$175 million, setting up for still a long run-way of growth. Importantly, we see management’s track record of success, both at WELL and prior ventures as reducing execution risk and leading to our conviction,” Keywood wrote.

By the numbers, Keywood thinks WELL will finish 2020 with revenue of $50 million and adjusted EBITDA at a loss of $1 million. For 2021, he is calling for revenue and EBITDA of $222 million and $43 million, respectively, and for 2022 revenue and EBITDA of $336 million and $80 million, respectively.

“We modelled in CRH, assuming the transaction closes in Q2, and leading to solid YoY growth metrics with an average increase of 250% for sales over the next six quarters, and step function changes to EBITDA and cash flow. Combined, we see the next leg of growth developing at much greater scale, leading to WELL 2.0.

Keywood said along with continued acquisition success, he sees WELL to benefit from SaaS revenue to come from recent tech acquisitions, saying that WELL’s M&A pursuit has become much more valuable with the further societal adoption of telemedicine and virtual care technology. As well, the analyst sees WELL’s clinics as a unique opportunity to mine test data before further expansion.

Keywood said WELL could also be a takeout target, arguing, “In a longer-term scenario, we could foresee part or all of WELL’s assets being acquired by private equity or larger strategic companies in this valuable industry.”

WELL Health’s share price delivered a return of 416 per cent in 2020, while so far in 2021 the stock is up five per cent.

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

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About The Author /

Cantech Letter founder and editor Nick Waddell has lived in five Canadian provinces and is proud of his country's often overlooked contributions to the world of science and technology. Waddell takes a regular shift on the Canadian media circuit, making appearances on CTV, CBC and BNN, and contributing to publications such as Canadian Business and Business Insider.
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