DRI wins target raise from iA Capital

After third quarter earnings from DRI Healthcare Trust (DRI Healthcare Trust Stock Quote, Charts, News, Analysts, Financials TSX:DHT.U), iA Capital Markets analyst Chelsea Stellick kept her “Buy” rating on the stock while raising her target price in a Tuesday note to clients. 

Toronto-based DRI Healthcare, which acquires and manages a diversified portfolio of pharmaceutical royalties, announced its Q3 2022 financials on Monday after market close, showing total income of $26.5 million versus $23.4 million for the same quarter a year ago and EBITDA of $23 million. Total income beat the consensus estimate at $21.6 million as well as iA Capital’s call at $21.9 million, while EBITDA was also a beat of the Street’s $16.8 million and iA Capital’s $18.3 million. (All figures in US dollars except where noted otherwise.)

DRI CEO Behzad Khosrowshahi said in the press release that the Q3 had been the company’s busiest on the M&A front since becoming a public company, with three royalty transactions completed involving $184.5 million.

“The combination of robust expected cash flows derived from the success of Omidria, and the growth prospects for Empaveli and Zejula, demonstrates our commitment to building long-term value for our unit holders by partnering with leading inventors, companies, and institutions in the bio-pharma value chain,” Khosrowshahi said.

“Importantly, the cash receipts from these assets in addition to those acquired in our previous transactions are expected to flatten to slightly increase our cash flow curve through the end of 2025,” he said.

As of the end of the third quarter, DRI’s portfolio included 22 royalties and secured loans on 17 products with a book value, net of accumulated amortization of $505.5 million.

Looking at the results, Stellick said the beats on income and EBITDA came largely from the outperformance of assets Vonjo and Zytiga over the Q3, while the company’s adjusted EBITDA margin was up to 84 per cent versus 77 per cent a year ago. Stellick noted that in the less than two years since its IPO, DRI has deployed $345 million of its $650-$750 million five-year capital deployment target. 

“We are encouraged by DRI’s latest acquisitions of Empaveli, Zejula and Omidria which will maintain cash flows through 2025 even in the absence of additional deployment. DRI will continue building the portfolio over time to lengthen its duration and diversify its income streams,” Stellick wrote.

Stellick put her 12-month target up to C$15.00 from C$13.00, with her valuation based on a blended P/B, EV/EBITDA and DCF valuation. At press time, the C$15.00 target represented a projected return of 134.0 per cent, including a dividend currently yielding 6.1 per cent.