VitalHub should hit $5.00, says Beacon Securities

Gabriel Leung of Beacon Securities is still feeling good about VitalHub (VitalHub Stock Quote, Chart, News, Analysts, Financials TSXV:VHI), maintaining a “Buy” rating and $5/share target price for a projected return of 69 per cent in an update to clients on Friday.

Founded in 2015 and headquartered in Toronto, VitalHub develops technology solutions for health and human service providers in the hospital, regional health authority, mental health, long term care, home health and community and social service sectors in Canada, the United Kingdom and the United States.

Leung’s latest analysis comes after VitalHub announced the acquisition of Beautiful Information Limited, a private operation based in the United Kingdom that offers unique real-time information to NHS trusts to help them plan and resource clinical services to meet hourly fluctuations in patient flow.

Leung expects the company’s platform to complement VitalHub’s existing patient flow and operational visibility product offerings, including those from its acquisitions of Alamac and Transforming Systems.

“While this is a relatively small tuck-in acquisition, it does both strengthen VitalHub’s product and customer footprint in the UK, which we believe could be a catalyst to help the company achieve even greater market share,” Leung said.

Beautiful Information was founded as the first NHS/private partnership of its kind, with support from the Kent Surrey Sussex Academic Health Science Network, the East Kent Hospitals University NHS Foundation Trust, and the Ashford St Peters NHS Foundation Trust.

All told, VitalHub is paying £1.55 million for Beautiful Information Limited, including £1,386,059 in cash and the rest spread out over 90,000 shares at an approximate value of $3.03/share. Post-acquisition, Leung estimates the company still has approximately $13.3 million in cash available, along with a $10 million unused debt facility and ARR of approximately $23 million.

From a valuation standpoint, VitalHub paid 1.6x revenue or 2.6x recurring revenue.

As of December 31, Beautiful Information had generated TTM revenue of £1 million, with 60 per cent of that figure being recurring revenue.

“Adding Beautiful Information’s solutions to our existing suite of Patient Flow and operational visibility products will serve to increase our customer base, while expanding our technology and advisory capabilities,” said Dan Matlow, CEO of VitalHub in the company’s January 27 press release. “The BI team brings extensive healthcare data expertise across the NHS and when combined with our existing Alamac and Transforming Systems products, creates strong synergies that position VitalHub as the leader in the UK for these types of solutions.”

In leaving his financial estimates on VitalHub unchanged, Leung believes the company will experience decent growth over the next couple years, forecasting revenue of $24.4 million in 2021 to imply a year-over-year increase of 76.8 per cent. In 2022, Leung forecasts revenue of $29 million to imply year-over-year growth of 18.9 per cent.

In terms of valuation, Leung forecasts the EV/Revenue multiple to drop from the reported 7.1x in 2020 to a projected 4x in 2021, then to a projected 3.3x in 2022.

Meanwhile, Leung forecasts a double in the company’s EBITDA in 2021, with the $4.6 million estimate implying a margin of 18.9 per cent for 2021. In 2022, the implied margin grows to 21.4 per cent with an estimate of $6.2 million, with Leung also noting the potential for the company to drive additional operating leverage to produce margins between 25 and 30 per cent as the company looks to scale its recurring revenue base.

From a valuation standpoint, Leung projects the EV/EBITDA multiple to drop from the reported 42.8x in 2020 to a projected 21.3x in 2021, then dropping off again to a projected 16x in 2022.

VitalHub’s stock has yielded a small return of 3.1 per cent over the last 12 months, though it has dropped 8.2 per cent from where it began 2022. VitalHub reached a 52-week high of $3.71/share on June 3, a gain from its 52-week low of $2.72/share on February 26.