Carebook Technologies has a 113 per cent upside, says iA Capital

Chelsea Stellick of iA Capital Markets has her attention on Carebook Technologies (Carebook Technologies Stock Quote, Chart, News, Analysts, Financials TSXV:CRBK), maintaining a “Buy” rating and target price of $1.60/share for a projected return of 113.3 per cent in an update to clients on September 23.

Founded in 2018 and headquartered in Vancouver, Carebook Technologies is engaged in the development and commercialization of a mobile health management system for individuals, their families, pharmacies, insurers, employers and clinics.

Stellick’s latest analysis comes after Carebook Technologies appointed Michael Peters, who brings over a decade of experience in healthcare including senior leadership roles at SE Health, as its new Chief Executive Officer.

“Mr. Peters communicated to us that he hopes to address the overhang on the story, namely burn rate and the need for integration of recent acquisitions into a cohesive whole,” Stellick said. “He will execute on these objectives by focusing first on capital discipline and organic growth, as CoreHealth and InfoTech complete ongoing integration into a single, universal, modular Carebook platform across all verticals.”

Peters assumed the role after Pascale Audette, the company’s CEO since 2016, left the company to pursue other opportunities.

“Carebook has rapidly established a strong competitive position within the global digital health industry,” Peters said in the company’s September 7 press release announcing the hire. “I look forward to joining the Company’s talented team, and working together to realize our vision of becoming a global digital health solutions provider. We will continue to execute against our current strategy placing emphasis on the acquisition and development of innovative technologies that expand our current service offerings and facilitate the development of new long-term customers. By delivering a consolidated offering of leading technologies to our expanding customer base, we will improve Carebook’s market position and create significant value for our shareholders.”

Stellick notes that the company has several strengths in play, most notably its partnership with McKesson on an ongoing major development contract, a widely applicable, flexible, easy to use technology platform, opportunities to upsell and cross-sell to existing Fortune 500 customers, reputable and validated modules such as Wellness Checkpoint’s health risk appraisal, a highly experienced leadership team and a tremendous healthcare digitization tailwind.

However, she also notes that higher than expected cost of capital, higher than expected cash burn and lack of sales have hurt the company’s prospects, though she believes those issues can be sorted out.

“Once new management’s capital discipline is established alongside upselling and cross-selling of existing solutions, we believe the market will begin to shift focus to the strengths of the underlying business including growth potential, bringing about the momentum shift Carebook needs,” Stellick said.

Carebook has been busy on the growth front over the last few months, having recently completed the acquisition of CoreHealth Technologies, platform powers health and wellness programs for corporate wellness companies, major insurers, human resources consulting firms, employee assistance program providers, health systems, population health management providers, group benefit brokers, health coaching providers and large employers., for $9 million in cash to add $3 million in annual revenue, along with a customer base of over two million license holders, as well as what the company deems ‘strategically significant technology.’

Stellick has made slight revisions to her financial projections for the company, as she now projects $7 million in revenue for 2021 compared to her previous $7.2 million estimate, though the new figure still marks a doubling of the 2020 reported figure of $3.5 million. From there, Stellick projects revenue to nearly double again to $13.9 million in 2022.

Stellick has also modified her EBITDA projections, now setting the adjusted EBITDA at a $4.2 million loss for 2021 compared to the initial $4 million loss projection, though she expects that to turn positive in 2022 at $1.1 million; she also expects EPS to go positive for the first time in 2022 at $0.01/share.

The company’s key trading multiples also appear to be improving in Stellick’s projections, with a forecasted halving to 5.1x in 2021 from 10.2x in 2020, followed by another near halving to 2.6x in 2022. Meanwhile, Stellick projects the EV/EBITDA multiple for the first time in 2022 at a 34x figure.

Stellick believes Peters is set to steer Carebook in the right direction moving forward.

“We believe the new CEO of Carebook has correctly identified and prioritized the upcoming steps that will be taken to shift market sentiment, namely acquisition integration, capital discipline, upselling, cross-selling, signing new pharmacy solution customers, and further M&A, in that order,” Stellick said. “The underlying technology and team are in place, and we will watch closely for progress on these clear objectives as new management focuses the strategy.”

Overall, CareBook’s stock price has steadily declined throughout 2021, with a loss of 55.4 per cent for the year to date after reaching a high point of $1.50/share on January 21.