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Greenbrook TMS has a 92 per cent upside, says Clarus

Clarus Securities analyst Noel Atkinson continues to like the industry tailwinds for Greenbrook TMS (Greenbrook TMS Stock Quote, Chart, News, Analysts, Financials TSX:GTMS), although COVID has hampered the company’s progress. In an update to clients on Monday, Atkinson maintained his “Speculative Buy” rating while lowering his target price from C$8.25/share to C$7.50/share for a projected 12-month return of 92.3 per cent.

With its headquarters in Toronto, Greenbrook TMS operates nearly 150 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 with more than 620,000 TMS treatments.

Atkinson’s latest analysis comes after Greenbrook released its fourth quarter financial results, which Atkinson noted to include some slight misses.

After a solid start to the quarter, the Omicron variant of COVID-19 limited Greenbrook’s revenue to $14 million (all figures outside of share price are in US dollars), which was slightly below the $15.1 million projection set by Clarus Securities. In particular, Atkinson pointed to the recently acquired Achieve East/Central portfolio generating less revenue than expected, while the remainder of Greenbrook’s portfolio was in line.

Meanwhile, Greenbrook’s adjusted EBITDA was also a slight miss, as the reported $3.5 million loss lagged behind Atkinson’s estimate of a $2.6 million loss, with the methodology now being more conservative as Greenbrook is no longer backing out center development costs.

Another notably down metric for Greenbrook in the quarter was its average rate of $229, which was below the Clarus Securities forecast of $238 and the Q3 report of $241, which Atkinson attributed to the regional mix and normalization of receivables collection.

Greenbrook did experience some positives in the quarter, though, as it achieved record patient starts in 35 per cent sequential growth, as well as record procedure volume after a 13 per cent sequential increase, with Atkinson attributing the growth to the Achieve East/Central acquisition and organic growth.

Going forward, Atkinson is expecting Greenbrook to come up with a new debt facility with the intent of raising at least $12 million of debt or equity capital after entering into a covenant with its existing provider. Atkinson also noted the company has $15 million of additional tranches available on the Oxford line, but does not believe Greenbrook has hit the required financial milestones to access the money, meaning the company will have to find the $12 million in subordinated debt or refinance the Oxford facility as part of a larger facility during the current quarter.

“Despite the challenges we faced over the past two years, we saw continued growth in both revenue and patient treatments. We believe that the demand for treatment of mental health disorders is at an all-time high and we have the right platform to serve this unmet need,” said Bill Leonard, President and Chief Executive Officer of Greenbrook in the company’s March 31 press release. “We are extremely proud of our dedicated team that continued to deliver the highest level of patient care in a very challenging operating environment. We are excited to continue our growth plans through 2022, with specific focus on enhanced utilization of our established TMS Center platform.”

With fourth quarter financial results and 2021 year-end figures now locked in, Atkinson has made some revisions to his future financial projections. Atkinson said that Greenbrook will likely have a more conservative revenue base in 2023.

“We had expected a major cost-cutting effort to preserve cash, but Greenbrook instead looks to be holding the line on costs and focused on procedure growth – funded in part by the extra US$12 million coming in from the upcoming capital raise,” Atkinson said.

After wrapping up 2021 with $52.2 million in revenue, Atkinson has lowered his 2022 forecast from $62.2 million to $57.3 million for a potential year-over-year increase of 9.8 per cent. Looking ahead to 2023, Atkinson has lowered his estimate from $69.9 million to $63.4 million, suggesting a year-over-year increase of 10.6 per cent.

From a valuation perspective, Atkinson forecasts a calendar year Price/Sales multiple of 1x for 2022, then dropping to a projected 0.9x in 2023.

Meanwhile, Atkinson has altered his adjusted EBITDA expectations as well, dropping his loss projection for 2022 from $1.4 million to an $8.8 million loss, followed by a projected $4 million loss in 2023, a stark contrast to the $9.2 million positive adjusted EBITDA he had previously predicted.

“We continue to use a target multiple of 2.0x 2022e price/sales. When applied to our updated 2022 revenue estimate, our target price is now C$7.50 per share (was C$8.25 previously). Given the valuations of the peer group, we believe our target multiple for Greenbrook is reasonable,” he wrote.

Greenbrook’s share price momentum has lost 77.4 per cent over the last 12 months and has taken a 21.1 per cent loss since the start of 2022. The stock hit a 52-week high of C$16.55/share on June 17, but it has been steadily declining ever since, hitting a 52-week low of C$3.57/share on March 24.

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Geordie Carragher is a staff writer for Cantech Letter
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