Greenbrook TMS gets new $24.00 target at Desjardins

Greenbrook TMS (Greenbrook TMS Stock Quote, Chart, News, Analysts, Financials TSX:GTMS) has come a long way in recent months but investors should expect more upside, says analyst David Newman with Desjardins Capital Markets. Newman delivered an update to clients on the company on Friday where he reiterated his “Buy” rating but boosted his target price from C$15.00 to C$24.00, representing at the time of publication a projected 12-month return at the time of 34.9 per cent.

Greenbrook is the largest provider in the US of TMS or Transcranial Magnetic Stimulation therapy for the treatment of depression and other mental health disorders. The company has 125 treatment centres and has provided more than 510,000 TMS treatments to over 14,000 patients with depression.

On February 16, Desjardins hosted a non-deal virtual roadshow with Greenbrook, from which Newman came away impressed by, among other things, the company’s growth prospects, M&A opportunities and improved exposure to investors.

Newman said Greenbrook plans to have 140 treatment centres in operation by the second or third quarter of this year.

“Aside from centre development (adding density in new regions), we believe GTMS is targeting the acquisition of smaller players in a few regions. We believe the deal size is likely in the mid-single-digit range, with valuation consistent vs pre-pandemic levels to account for the target’s historical growth and recovery post-COVID-19,” Newman wrote.

The COVID-19 pandemic has resulted in a surge in mental health issues, with a reported 30 to 40-per-cent increase in the US in prescriptions to treat depression, according to Newman, with about 50 per cent of those for first-time patients. The analyst predicted the increase should lead to strong volumes at Greenbrook clinics over the next eight to 12 months after patients are diagnosed or about six to eight months after patients fail drug therapy as they travel through the healthcare system. The result is a veritable tsunami of patients, according to Newman, which should hit GTMS’ pipeline in the second half of this year.

On patient acquisition, Newman said the company is well-positioned, with a network of 25-30 representatives generating new patients, a data analytics healthcare platform and benefits from stepped-up medical device manufacturer marketing.

On investor attention, Newman noted the rise in interest coming off the company’s recent one-for-five share consolidation, upcoming NASDAQ listing (likely in March) and inclusion in the Horizons psychedelic ETF, along with GTMS’s $30-million credit facility, closed this past December. (All figures in US dollars except where noted otherwise.)

As far as the stock is concerned, GTMS started climbing in December, going from C$7.00 per share to above $20.00 by early February. There’s likely more to come, says Newman.

“We believe GTMS’s share price has significant runway ahead given its leadership position in a large and growing addressable market, its imminent NASDAQ listing, stronger liquidity position to support growth and greater investor awareness (especially in the US), backstopped by the underlying second wave of depression, with COVID-19 serving as a catalyst,” Newman wrote.

“Given COVID-19-induced delays to the second-year ramp of new centres that were opened in 2018–19, management expects to reach profitability in late December 2021 or early 2022,” Newman said.

The analyst has revised his estimates for Greenbrook, now calling for full 2020 revenue and EBITDA of $45.6 million and negative $6.3 million, respectively, 2021 revenue and EBITDA of $66.2 million and negative $2.2 million, respectively, and 2022 revenue and EBITDA of $97.0 million and $13.9 million, respectively.

Ahead of fourth quarter results due on March 30, Greenbrook last reported in November where its third quarter saw revenue grow by 42 per cent year-over-year and up 23 per cent sequentially to $12.0 million. Adjusted EBITDA was a loss of $937,073.

“In Q3 2020, we proudly announced our second highest quarterly revenue results since our inception and a return to strong regional operating income, despite the challenging operating environment imposed by the COVID-19 pandemic,” said president and CEO Bill Leonard in a November 10 press release.

“We continued to experience record monthly highs in new patient starts throughout Q3 2020, highlighting the essential need for TMS therapy during these challenging times. We believe these record monthly highs will support a continued strong upward trend into the fourth quarter of 2020,” he said.

For the upcoming fourth quarter, Newman is forecasting revenue of $12.3 million and an EBITDA loss of $1.9 million.

With the Q3 results, Greenbrook announced the launch of a pilot program involving a nasal spray called Spravato for general anesthetic and treatment-resistant depression. The pilot will launch at five GTMS centres.

Newman said if the pilot program is successful the company may roll out Spravato at select centres across its network.

“The individual centres could benefit from greater operating leverage especially as they fill out day parts and smooth the flow of patients throughout the day, resulting in greater productivity,” Newman wrote.