Vitalhub keeps Buy rating with Beacon Securities

The stock is down about 19 per cent over the past year, but investors will want to own Vitalhub Corp (Vitalhub Stock Quote, Charts, News, Analysts, Financials TSX:VHI), according to Beacon Securities analyst Gabriel Leung who delivered an update on the company on Friday. Calling Vitalhub one of his best ideas in the small-cap tech space, Leung reiterated a “Buy” rating and $5.00 target price, implying a 12-month return of 89 per cent.

Toronto-based Vitalhub, which has electronic healthcare record solutions for organizations within the acute care, mental health, community health services and long-term care sectors across North America and internationally, announced its fourth quarter and full 2022 results on Thursday. The company posted revenue up 63 per cent year-over-year to $11.3 million and adjusted EBITDA at $2.5 million compared to $1.4 million a year earlier. 

Vitalhub has been growing organically as well as through M&A, where it completed four major acquisitions in 2022 and followed up with the purchase in January of Coyote Software. 

In the Q4 press release, CEO Dan Malow said, “For fiscal 2022, the Company has consistently focused and executed organic growth initiatives that complemented synergistic M&A activities to deliver strong value to our shareholders. We are excited by the market traction and penetration we have achieved in fiscal 2022 and look forward to continuing efforts to scale our business in 2023.”

On the Q4 financials, the $11.3 million topline was ahead of Leung’s forecast of $10.2 million and in-line with the consensus call of $11.2 million, while EBITDA at $2.5 million was also ahead of Beacon Securities’ forecast at $2.2 million but under the Street’s estimate at $2.9 million.

Leung pointed out Vitalhub’s gross margins which increased to 82.3 per cent, with the year-over-year and sequential rise being attributed to continued scaling of recurring revenues. ARR rose 18 per cent year-over-year and three per cent sequentially to $36.1 million by the end of the fourth quarter. EBITDA margins were also up, Leung noted, to 22.6 per cent.

“We believe there are opportunities for further EBITDA margin accretion from cost optimization of recent acquisitions, along with continued operating leverage with the growth in recurring revenues,” Leung wrote.

Looking ahead, Vitalhub is targeting about 15 per cent year-over-year organic growth with about 25 per cent EBITDA margins, and Leung said the company could hit that mark by the calendar year-end.

“As it relates to the demand environment, despite challenging macro conditions in the UK, the company remains bullish on the region, along with Canada. From a product perspective, the company continues to see a strong pipeline for its TREAT and Transforming Systems product platform,” Leung wrote.

“With its predictive business model, resilient industry fundamentals, compelling product portfolio, and strong management team, we continue to view VitalHub as one of our best small-cap technology names under coverage,” he said.