WELL Health has a 73 per cent upside, says Laurentian Bank

Strong quarterly results have Laurentian Bank Securities analyst Nick Agostino staying bullish on WELL Health Technologies (WELL Health Technologies Stock Quote, Chart, News Analysts, Financials TSX:WELL). Agostino reviewed WELL’s first quarter numbers in an update to clients on Wednesday where he kept both his “Buy” rating and $12.50 target price.

WELL Health is an omni-channel digital health company with a number of business segments. WELL owns and operates primary and executive healthcare clinics in Canada and the United States, operates a digital Electronic Medical Records (EMR) business which is the third-largest in Canada, has telehealth services in Canada and the US and offers digital health, billing and cybersecurity-related solutions. A company with a very active M&A program, WELL completed its largest acquisition to date in CRH Medical a US-based gastroenterology and anesthesia company.

WELL announced on Tuesday its Q1 2021 earnings, which featured $25.6 million in revenue, up 150 per cent year-over-year, and adjusted EBITDA of $0.5 million compared to a loss of $0.2 million a year earlier. (All figures in Canadian dollars except where noted otherwise.)

Commenting on the quarter and WELL’s acquisition of CRH Medical, WELL CEO Hamed Shahbazi said in a press release, “During Q1 we also announced the acquisition of CRH and subsequently closed the transaction in Q2, which puts us on track for an annualized revenue run-rate approaching $300million.”

“CRH accelerates our revenue growth and significantly boosts our free cash flow, which will be used to make additional cash flow generating acquisitions. I am also pleased to report that CRH, now operating as a stand-alone WELL business unit, is on track to meet its business plan goals to generate over US$150M in revenues and over US$40M in free cashflow before leverage and tax costs,” Shahbazi wrote.

WELL has made a number of moves subsequent to the quarter’s end, including the launch of Health Records on iPhone for patients to view their available medical records over their iPhone, the acquisition of Ottawa-based executive health company ExecHealth, the acquisition of a 51-per-cent stake in billing service Doctors Services Group, the securing of an amended senior secured credit arrangement for an aggregate amount of up to US$300 million and the completion of its acquisition of enterprise-class EMR company IntraHealth. WELL ended the first quarter 2021 with $83.3 million in cash and loans and other borrowings of $1.7 million.

Looking at the quarter, Agostino said the $25.6-million topline compared to his $24.2-million estimate and the consensus call for $24.3 million, while EBITDA of $0.5 million was in line with his $569,000 estimate and the Street’s $600,000.

“In-line-to-better Q1 results alongside a positive outlook demonstrate to us WELL’s operational expertise in meeting/exceeding expectations. The company’s M&A plans also remain unhinged, which we believe speaks to the clear visibility and direction management has for the company,” wrote Agostino.

“Post- Q1, following the acquisitions of ExecHealth, Doctors Services Group Limited and New England Anesthesia Associates, we estimate the company has >$175 million for further M&A, inclusive of $65 million in cash, $30 million available on its revolver excluding the accordion feature, and $50-$60 million via FCF generation. With nine LOI’s signed and pending, we believe management’s goal is to take the company to $400 million in annual run-rate revenues/$100 million in EBITDA before pursuing a US IPO,” Agostino wrote.

Among the key takeaways from the conference call, Agostino pointed to how WELL’s omni-channel model continues to deliver, with total patient visits hitting 469,982 for the first quarter, up 78 per cent sequentially and comprised of in particular 142,944 in-person visits (up 19 per cent sequentially) and 327,038 telehealth visits (up 127 sequentially).

Agostino also noted that excluding the recent IntraHealth acquisition, WELL’s EBITDA margins in its EMR segment now exceed the 25-per-cent benchmark to match the profile from subsidiary KAI Innovations, acquired in 2019. “This will benefit forward EBITDA growth,” Agostino wrote.

On his forecast, Agostino wrote, “Based on Q1 results and company commentary, we are tweaking our sales estimates slightly higher to reflect Q1 unit run rates and include the recent NEAA acquisition in our modelling. On EBITDA, we modestly up our EBITDA/margin estimates through 2022 to include NEAA while drawing comfort from the in-line Q1 EBITDA.”

The analyst is now calling for 2021 sales and EBITDA of $249.0 million and $52.0 million, respectively, and for 2022 sales and EBITDA of $337.0 million and $92.4 million, respectively.

On valuation, Agostino said his $12.50 target stems from an 8x multiple of his 2022 EV/Sales estimate, while he sees WELL as currently trading at 5.4x next 12 month EV/Sales versus 5.9x from its peer group in high-growth Medical Technology companies. At the time of publication, Agostino’s $12.50 target represented a projected one-year return of 72.9 per cent.

Disclaimer: Jayson MacLean and Nick Waddell owns shares in WELL Health Technologies and WELL is an annual sponsor of Cantech Letter.