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VitalHub has an 87 per cent upside, says Beacon

It’s a new year and now a new acquisition for VitalHub Corp (VitalHub Corp Stock Quote, Charts, News, Analysts, Financials TSX:VHI), which just received a maintained “Buy” rating from Beacon Securities. In a Monday report, Beacon analyst Gabriel Leung reviewed the deal for Coyote Software and kept a 12-month target price on VHI of $5.00 per share, good for a projected return of 87 per cent at the time of publication.

VitalHub, which has electronic healthcare record solutions for organizations in the acute care, mental health, community health services and long-term care sectors across North America and internationally, announced on Monday that it has acquired Coyote Software for about $2.4 million including a cash payment of about $2.3 million and about 38K shares at $2.83 per share.

Coyote was founded in 1992 and has a range of tailored software development, business consulting and systems integration services for healthcare organizations. The company’s solutions include CaseWORKS for enterprise clients and FormWORKS, ScanWORKS and ShareWORKS, programs for forms automation, records scanning and document sharing. Coyote has over 80 health and social-based organizations as customers and had a trailing 12 months revenue at November 30, 2022 of about $1.6 million of which over $1.1 million was considered recurring.

“With this acquisition we are excited to expand upon our robust suite of offerings specifically servicing the Canadian marketplace, together with our BCare, TREAT, Clarity and Roxy solutions. We look forward to welcoming Coyote’s team members and CaseWORKS solution to the Company,” said Dan Matlow, CEO of VitalHub, in a press release.

Looking at the deal, Leung said there was no commentary around margins for Coyote but he is assuming based on VHI’s historical precedent that the new acquisition will fall into VitalHub’s operating model of over 20 per cent EBITDA margins “relatively quickly.”

“As such, Coyote was acquired for 1.5x sales and 2.2x recurring sales, versus VitalHub at 2.2x and 2.9x respectively so we do expect this acquisition to be accretive,” Leung wrote.

Up ahead for VitalHub, Leung sees its next catalyst to be the Q4 2022 results, due in March, with the analyst currently modelling $10.2 million in revenue and $2.2 million in EBITDA. He noted that the Q4 should include initial contributions from the acquisitions of Community Data Solution and ADI Health.

The analyst said he has factored the Coyote acquisition into his estimates and the net impact is an unchanged target at $5.00, based on a 17x multiple of his EV/EBITDA 2023 estimate.

“We continue to view VHI as one of our most compelling small cap names under coverage given its resilient business model, strong organic and M&A growth profile and growing FCF and strong balance sheet,” Leung said.

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About The Author /

Jayson is a writer, researcher and educator with a PhD in political philosophy from the University of Ottawa. His interests range from bioethics and innovations in the health sciences to governance, social justice and the history of ideas.
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