Think Research is a great digital health play, says Desjardins

Desjardins analyst David Newman thinks highly of Think Research (Think Research Stock Quote, Chart, News TSXV:THNK), initiating coverage with a “Buy” rating and target price of $5.00/share in an update to clients on Thursday.

Founded in 2006 and headquartered in Toronto, Think Research Corp. is an integrated healthcare technology provider offering evidence-based, data-driven services and solutions to enterprise clients, hospitals, health regions, healthcare professionals and governments. The company currently serves over 300,000 healthcare professionals, over three million patients, about 2,800 hospitals, clinics and long-term care homes and about 200 research and pharmaceutical companies internationally.

Newman said his positive view on THNK relates to the predictable business model from its cloud-based platform, which has over 70 per cent of recurring/reoccurring revenue, a focus on B2B/B2G and what the analyst calls significant global organic growth as well as M&A opportunities.

“THNK’s competitive advantages stem from its: (1) vertically integrated business model, which enables it to gather evidence through the patient journey across healthcare verticals and augment the digital flywheel of medical knowledge tools; (2) strong enterprise and government relationships (>80 per cent of revenue), with three to five-year contracts and >70 per cent higher-margin private pay; and (3) growing global presence (~85 per cent Canada),” Newman said in his coverage launch.

Think has been aggressive on the acquisition front since the onset of the COVID-19 pandemic, beginning with the February 2020 acquisition of Airmed Trials, a Canadian company focused on clinical trials and workflow optimization, at a cost of $877,000. They followed up by paying $13.5 million to acquire primary care clinic operator HealthCare Plus in December 2020, before adding elective surgery centre Clinic 360 ($4.9 million purchase price) and online CME and professional development solutions provider MDBriefCase ($28.6 million purchase price) in January 2021.

Most recently, Think added BioPharma, a CRO serving pharmaceutical, biotechnology and medical device companies, to its portfolio at a cost of $44.6 million in July, boosting the aggregates of the five acquisitions to $64.8 million with $13.2 million in adjusted EBITDA, while boosting the company’s revenue run rate to a projected $82 million from $23 million in 2020.

Think has also shown positive results in the field, with the company reporting that utilization for its leading seniors care decision support tools experienced a 266 per cent quarter-over-quarter increase, with management attributing the growth rate to increased demand from long-term care homes, and the deployment of additional tools with existing seniors care clients.

“Delivering the best care to seniors is incredibly important as Canada’s population ages and life expectancy increases,” said Sachin Aggarwal, CEO of Think in the company’s August 4 press release. “Residents in long-term care homes often have complex health issues that require ongoing care, and we believe in supporting healthcare providers with the most easy-to-use, evidence-based tools that can help them do their jobs as effectively as possible.”

“The significant increase in demand for our tools shows just how vital they are, and we expect to continue to deploy our software solutions in even more facilities as we grow our global footprint,” Aggarwal added.

From a quarterly perspective, Newman projects revenue in excess of $10 million for each remaining quarter of this year ($10.1 million in Q2, $10.4 million in Q3, $19.1 million in Q4), while also expecting a positive adjusted EBITDA of $500,000 to be in play by the fourth quarter after projected losses of $1.6 million in the second quarter and $1.4 million in the third quarter.

Annually, Newman foresees solid revenue growth for Think, projecting $48 million for 2021 to mark a 147.4 per cent year-over-year increase over the reported $19.4 million in revenue from 2020, followed by another projected jump to $91 million in 2022 (89.6 per cent year-over-year increase) before crossing nine figures to a projected $106 million in 2023 (16.5 per cent year-over-year increase).

Accordingly, Newman predicts the company’s EV/revenue multiple to drop from 5.2x in 2020 to 2.1x in 2021, followed by another dip to a projected 1.1x for 2022 before settling in at 0.9x in 2023.

Newman estimates the company’s annual EBITDA will turn positive in 2022 after reporting a $2.3 million loss in 2020 and projecting a $4.1 million loss for 2021, with estimated figures of $6.1 million for 2022 and $11.7 million in 2023 in play. Furthermore, Newman estimates the company’s EV/adjusted EBITDA multiple will come into focus in 2022 at 16.4x before dropping to a projected 8.5x in 2023.

With second quarter financial results expected on August 23, Newman believes Think is well positioned in the Canadian healthcare industry moving forward.

“THNK’s efforts should be aided by its move upstream into clinical knowledge and clinical research and downstream into primary care, the first and key point on the continuum of care for patients within a healthcare system, all interconnected with its clinical connectivity tools,” he wrote. “While COVID-19 has been a significant catalyst in the adoption of digital healthcare technology, we believe the secular shift and recovery post-pandemic should drive new customer wins, ongoing renewals and higher net retention rates.”

Think Research’s share price is down 49.4 per cent ($2.16/share) for the year to date, having reached a high point of $4.51/share on March 30. At press time, Newman’s $5.00 target represented a projected one-year return of 134.7 per cent.