Carebook Technologies remains a “Buy” at Industrial Alliance

Canadian digital health company Carebook Technologies (Carebook Technologies Stock Quote, Chart, News, Analysts, Financials TSXV:CRBK) made some big strides over the early part of the year, according to analyst Chelsea Stellick of iA Capital Markets. Stellick reviewed Carebook’s first quarter numbers in an update to clients on Thursday where she reiterated her “Buy” rating but dropped her one-year target from $2.25 to $2.00 per share.

Montreal-based Carebook Technologies has a platform with customer-centric digital solutions for pharmacies, insurance, employers and individuals. The company arrived on the TSX Venture this past October through an RTO and private placement raising $21 million and has seen its share price drop over ensuing months, currently trading down 16 per cent year-to-date.

The company last year launched the “Be Well” app for Rexall Pharmacy across Canada, while in M&A Carebook announced this past November to acquire health tech company for the insurance industry, Novus Health, and then last month closed on the previously announced acquisition of InfoTech, a health and productivity risk management software company for $14 million, consisting of $9 million in cash and $5 million in Carebook shares at $1.21 per share.

Carebook announced its first quarter 2021 results on Thursday, with revenue dropping 11 per cent year-over-year to $0.9 million and a loss of $1.9 million compared to a loss of $0.8 million a year earlier.

“Our first quarter was a very productive quarter for us as we focused on product and business development, two areas that will set our path to strong and sustainable growth going forward,” said Pascale Audette, CEO, in a press release. “We have identified significant opportunities for growth within the global pharmacy vertical as well as with our innovative scan technology. With the successful closing of our acquisition of InfoTech last month, our global footprint has increased substantially, and we are now strategically positioned to optimize our offerings to a much larger population.”

With the quarterly update, Carebook said its pharmacy vertical is seeing new product development in the form of a Caregiver Pharmacy App set for launch over the next few months and a Medication Adherence Solution which is moving into the testing phase and should be available in late 2021. On the Novus Health LOI, management provided no update other than to say it is continuing its due diligence with respect to the transaction. Carebook’s MyVitals app, which has proprietary software to measure heart rate and oxygen saturation, is currently seeking Class II medical device registration along with pilot studies.

Looking at Carebook’s Q1, Stellick said the company’s topline of $0.9 million was equal to the consensus call but lower than her forecast at $1.1 million. Stellick noted that operating expenses came in at $2.5 million as the company increased its headcount in preparation for growth, with $0.5 million for sales, $1.1 million for R&D and $0.9 for G&A. Stellick said with InfoTech arriving, the Q1 was the company’s last where revenue was almost entirely software development for a single customer.

On the InfoTech acquisition, Stellick said, “Management expects adding features to Wellness Checkpoint to unlock synergies will take about 6 months, so we look for synergies to accrue to revenue growth in 2022 as contracts roll. We continue to assume the Health Care Services International Inc., doing business as Novus Health, acquisition will close given the signed LOI, but note that further delays in closing may result in Carebook pursuing the insurance vertical organically through InfoTech’s insurance customers.”

“May is the one-year anniversary of the Be Well app for Rexall, which registered hundreds of thousands of users and outperformed Rexall’s expectations. CRBK continues to build additional features, including a caregiver solution which will launch in the next few months and a medication adherence solution which is expected to launch in late 2021. Caregiver and medication adherence resources will differentiate the pharmacy offerings as CRBK pursues new customers,” Stellick wrote.

On the potential for further customer growth, the analyst said Carebook continues to target the addition of one to two enterprise customers per vertical per year, with Stellick thereby expecting one to two SaaS pharmacy customers in the fourth quarter of this year.

“We continue to expect equity financing in Q3/21 as signalled in the recent debt financing to fund the InfoTech acquisition,” she said.

As for the lowered price target on Carebook, Stellick said her updated model has upwardly revised R&D and G&A estimates, resulting in a lower DCF valuation, a decreased cash burn which lowered the Price/Book and, finally, a higher EV/Revenue multiple came from rolling forward revenue to 2022, increasing revenue expected from new customers in 2022 due to new product development and delaying the anticipated close of the Novus deal from mid-Q2/21 to mid-Q3/21.

At the time of publication, Stellick’s new $2.00 target represented a projected return of 69.5 per cent.