Greenbrook TMS is a double, Clarus says

Clarus Securities analyst Noel Atkinson is retaining a positive outlook on Greenbrook TMS (Greenbrook TMS Stock Quote, Chart, News, Analysts, Financials TSX:GTMS). In an update to clients on Tuesday, Atkinson maintained both his “Speculative Buy” rating and target price of C$26.00/share for a projected 12-month return of 101.6 per cent.

With its headquarters in Toronto, Greenbrook TMS operates 128 treatment centres across the United States providing Transcranial Magnetic Stimulation (TMS) therapy for the treatment of depression and other mental health disorders. TMS uses electromagnetic stimulation to specific regions of the brain associated with mood regulation, with Greenbrook having now treated over 17,000 patients and more than 620,000 TMS treatments.

Atkinson’s latest analysis comes after Greenbrook produced second quarter numbers which beat the analyst’s forecasts.

Greenbrook reported records across the board in the second quarter, with procedural volumes rising 12 per cent from quarter to quarter and revenues up to $13.7 million in the quarter, beating the Clarus forecast of $12.6 million and rising by 21 per cent on a quarter to quarter basis. The loss attributable to shareholders was $6.8 million versus $9.5 million a year earlier and adjusted EBITDA was a loss of $2.7 million compared to Atkinson’s estimate of $3.8 million. (All figures in US dollars, except where noted otherwise.)

“We are proud to announce our highest quarterly consolidated revenue results to date, driven by record quarterly treatment volumes. We also achieved a strong return to entity-wide regional operating profitability and we experienced a record quarterly high in new patient starts, which we anticipate will be a catalyst for future growth,” said Bill Leonard, President and CEO of Greenbrook in the company’s August 5 press release.

“We intend to continue the roll-out of the Spravato Pilot Program, building on our long-term business strategy of utilizing our network of TMS Centers and affiliated physicians as a service delivery platform for the delivery of innovative treatments to patients suffering from Major Depressive Disorder and other mental health disorders,” he said.

The company also saw its prices rise to pre-COVID levels, with the average procedure jumping to $235 to get ahead of Clarus estimates, driven by a combination of an improved business mix, better billing and aged A/R collection, according to Atkinson. From a cash perspective, Greenbrook ended the quarter with $19 million in cash compared to $5.9 million in the first quarter.

Greenbrook’s prospects continue to be prosperous, according to Atkinson, as it continues its rollout of esketamine, branded as Spravato, a nasal spray taken in conjunction with an antidepressant to treat adults with treatment-resistant depression. Greenbrook has expanded the target roster of locations offering Spravato to 13, which should be ready by the end of the year.

“Greenbrook continues to have a plethora of macro growth drivers for the TMS services sector overall, which should particularly benefit the Company given its positioning as by far the largest independent TMS treatment provider,” Atkinson said. We believe the expected rollout of Spravato treatments (and other psychedelic treatments once FDA-approved) could eventually have a materially positive impact on facility utilization and profitability and would make Greenbrook by far the largest chain of treatment centers in the U.S. for administering FDA-approved psychedelic drugs to treat depression and other mental illnesses.”

Greenbrook’s financial updates have also prompted revisions in Atkinson’s valuation estimates, with 2021 revenue now forecast to reach $56 million instead of the original $54 million projection, making for a 29.9 per cent year-over-year projected increase. Atkinson then foresees 2022 revenue hitting $77.8 million, marking a 38.9 per cent year-over-year increase based on the revised estimates.

Atkinson also projects slightly smaller losses in adjusted EBITDA over the next year, forecasting an $11.1 million loss (20 per cent margin loss) for 2021, tightening up to a projected $1.3 million loss (2 per cent margin loss) for 2022. The price-to-sales ratio is also forecast to drop in Atkinson’s view, moving from a projected 3.1x in 2021 to 2.2x in 2022.

2023 appears to be Greenbrook’s breakout year in Atkinson’s projections, with the Clarus DCF valuation model indicating an 18 per cent annual increase in revenue from 2023 through 2020, with an EBITDA margin of nine per cent in 2023 (down from 12 per cent), 18 per cent in 2024 (down from 24 per cent), and 24 per cent from 2025 through 2030. 

Ahead of the quarterly results release, Greenbrook stayed busy with a $23.5 million private placement of common shares led by Atlanta-based registered investment adviser Masters Special Solutions, which has an interest in innovation, small cap public healthcare companies within North America.

Greenbrook extended its relationship with Masters Special Solutions by appointing Robert Higgins, the company’s managing director, investment professional and general counsel, to its board of directors.

Greenbrook closed Wednesday trading at $13.16/share on the Toronto Stock Exchange, up 33 cents from its Tuesday closing figure of $12.83/share. The jump is part of a mostly positive year for Greenbrook investors, as the stock value has risen by 8.76 per cent over the year to date.