Nova Leap Health is still a Buy, says Echelon

A strong balance sheet is setting up Nova Leap Health Corp (Nova Leap Health Stock Quote, Charts, News, Analysts, Financials TSXV:NLH) for accretive M&A. That’s the scoop from Echelon Capital Markets analyst Stefan Quenneville, who reviewed Nova Leap’s third quarter financials in a client update on Friday.

Headquartered in Halifax and incorporated in 2015, Nova Leap Health provides home and home healthcare services such as dementia care, personal and respite care, daily living and companionship, among others, with business in a number of states in the US as well as in the province of Nova Scotia. The company posted its second-highest ever revenue at $7.1 million, good for a year-over-year increase of 35.7 per cent. Adjusted EBITDA was its highest ever at $325,497 compared to $59,100 a year earlier. (All figures in US dollars except where noted otherwise.)

“Q3 was a solid quarter and one in which we saw significant improvement over Q2,” said Chris Dobbin, President & CEO, in a press release. “The combination of an improved top line obtained through organic revenue growth and the implementation of operational efficiencies led to the Company’s best ever quarterly Adjusted EBITDA and second best quarterly revenues.”

“[W]e exited Q3 as a leaner operation compared to Q2 and in a stronger financial position which allows us to continue focusing on organic growth initiatives, evaluating acquisition opportunities and further operational improvements,” Dobbin said.

Evaluating the results, Quenneville said Nova’s topline at $7.1 million was slightly better than his estimate at $7.0 million and came in-line with the consensus call at $7.1 million. Adjusted EBITDA at $325K beat Quenneville’s estimate at $174K and the Street’s forecast at $200K. EPS at $0.01 per share was better than Quenneville’s call at $0.00 per share. 

“While our Q422 and 2023 forecasts remain materially unchanged, follow-through of this strong rebound going forward coupled with the Company’s improving balance sheet would allow for it to return to its prior accretive M&A cadence as it enters 2023. We continue to view the Company as well-positioned in the demographically attractive and fragmented home care market and are maintaining our Buy rating and C$0.90 price target,” Quenneville wrote.

Quenneville noted Nova’s recent non-brokered private placement of 6.8 million common shares for gross proceeds of C$2.4 million. The analyst pointed out that insiders accounted for 82 per cent of the deal, putting insider holdings at about 39 per cent of issued and outstanding shares and reflecting “NLH insiders’ strong confidence in the business’ long-term prospects as the underlying demographic trends and demand for private pay home care remain robust.”

At press time, Quenneville’s C$0.90 target represented a projected one-year return of 246 per cent.