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WELL Health is still undervalued, Haywood says

WELL Health

WELL Health
WELL Health Technologies rings the opening bell at the Toronto Stock Exchange to celebrate graduating to the big board on Friday, January 10, 2020.
Record revenue and first-ever positive EBITDA were highlights of fourth quarter results from WELL Health Technologies (WELL Health Technologies Stock Quote, Chart, News, Analysts, Financials TSX:WELL), according to Haywood Capital Markets analyst Colin Healey. In an update to clients on Thursday, Healey reviewed the Q4 numbers from WELL and maintained his “Buy” rating and Top Pick status for the stock.

Vancouver-based WELL Health is an omni-channel company which owns and operates 27 primary healthcare clinics, has an electronic medical records (EMR) business serving over 2,200 medical clinics, operates a telehealth platform in Canada and the US and has digital health, billing and cybersecurity technology solutions. The company released its fourth quarter and full year 2020 financials on Thursday, posting quarterly revenues of $17.2 million, up 75 per cent year-over-year, and EBITDA of $0.77 million compared to a loss of $0.31 million a year earlier.

For the 2020 year, total revenue was $50.2 million compared to $32.8 million for 2019, with the bulk of those gains coming from acquisitions over the past year and increases in software and telehealth-related revenue. Adjusted EBITDA for the year was a loss of $0.1 million compared to a loss of $1.7 million for 2019. (All figures in Canadian dollars except where noted otherwise.)

On the company’s Q4, CEO and Chairman Hamed Shahbazi wrote in the press release, “We have proven that our capital allocation model works, and moving forward we are only expecting profitability and cash flows to grow. During Q4 we also completed seven transactions and that pace has continued into Q1 with a number of completed and announced transactions, including the proposed acquisition of CRH Medical.”

Announced in early February, WELL’s agreement would see it pay US$369.2 million for CRH Medical, a gastroenterology and anesthesia company with business in the US including service to 69 ambulatory surgical centres in 13 states. WELL’s share price initially popped 12 per cent on the announced deal, although the stock has fallen back since.

Tallying up WELL’s recent M&A activity, the company completed seven transactions over the Q4 2020, acquiring a majority stake in Easy Allied Health, acquiring DoctorCare, acquiring the remaining shares of Insig Corp which the company did not already own, acquiring San Francisco-based Circle Medical, acquiring Source44 Consulting, acquiring a minority interest in Simpill Health and acquiring ExcelleMD and its affiliate VirtuelMED.

So far in 2021, WELL has completed five transactions not counting the CRH deal and a share purchase agreement to acquire Intrahealth Systems: acquiring Adracare and Open Health Software, the migration of all clinics from ClearMedica Corp onto WELL’s OSCAR Pro platform under a customer purchase agreement, acquiring a minority investment in Twig Fertility and the subscription for additional shares of

In WELL’s Q4 report, Shahbazi quoted CRH’s own fourth quarter results which featured a 21-per-cent year-over-year growth rate and adjusted EBITDA operating margins over 40 per cent.

“Aside from the financial benefits of the deal, CRH is a strong strategic fit for WELL as it provides us with a meaningful US-based channel of customers and practitioners to which we can offer a diverse multi-pronged offering of digital health tools and capabilities. The close of our transaction with CRH will signify the very start of our value creation journey with this very special company,” Shahbazi wrote.

Looking at the fourth quarter numbers, Healey said revenue of $17.2 million was in line with his $17.0-million estimate (consensus was $16.9 million), while adjusted EBITDA of $0.77 was a beat of his $0.14-million estimate and the (consensus was $0.08 million). The analyst noted WELL’s Software and Services revenue which grew by 400 per cent year-over-year to $5.8 million, accounting for about 34 per cent of the company’s total top line. Healey said WELL is currently operating at about a $300-million annualized revenue run rate and reflecting an even greater percentage increase on a 12-month forward basis.

“WELL is a ‘Top Pick’ and is on a stellar trajectory with rapid upward movements in the stock often correlated with M&A announcements,” Healey wrote. “We recommend investors position themselves now for exposure to what we expect to continue to be a very busy 2021 from an M&A perspective.”

“WELL continues to enjoy strong momentum spawned by market recognition of its strategy and execution as it builds out its technology platform organically and through complementary strategic acquisitions. With about $40-$55 million in cash following the close of WELL’s Intrahealth and CRH acquisitions, we expect WELL to be highly active on the acquisition front for the remainder of 2021, delivering stock-catalyzing news flow,” Healey wrote.

Healey has updated his forecasts and is now calling for WELL to generate 2021 revenue and EBITDA of $212.5 million and $47.2 million, respectively, and 2022 revenue and EBITDA of $296.4 million and $84.1 million, respectively.

Healey said the CRH Medical acquisition metrics look better after the company’s fourth quarter numbers, pushing the EV/Revenue multiple of 3.1x and EV/EBITDA multiple of 7.7x (both at the time of announcement) to 2.5x and 5.7x, respectively.

Healey estimates WELL to be currently trading at 15.8x EV/2022 EBITDA versus its industry peers at 34.7x.

“[The] valuation on current peer forward EBITDA multiples looks fairly attractive, especially in the context of WELL’s outsized acquisition-driven growth rate and strategy,” Healey wrote.

With his “Buy” rating, Healey has reaffirmed his $12.00 target price, which at the time of publication represented a projected one-year return of 49 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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