Calling the stock a compelling investment opportunity, Paradigm Capital analyst Daniel Rosenberg issued a report on Canadian software company Vitalhub (Vitalhub Stock Quote, Charts, News, Analysts, Financials TSX:VHI) on Sunday and reiterated a “Buy” rating. Rosenberg said Vitalhub’s organic growth and industry tailwinds are setting the company up for a strong 2023.
Toronto-based Vitalhub, which has patient flow software solutions for healthcare settings such as hospitals, regional health authorities and long-term care, announced on March 23 its fourth quarter and 2022 financials. The company posted a Q4 topline up 63 per cent to $11.3 million and adjusted EBITDA of $2.5 million compared to $1.4 million a year earlier. For the year, revenue was up 62 per cent to $40.0 million and adjusted EBITDA was up 24 per cent to $9.5 million.
“Our record fourth-quarter revenue capped off fiscal 2022 with strong positive momentum across all of our key performance indicators,” said CEO Dan Matlow in a press release. “The positive organic and accretive inorganic growth contributed to record Q4 and fiscal 2022 revenue, adjusted EBITDA, and annual recurring revenue.”
In his comments, Rosenberg said Vitalhub’s Q4 revenue was in-line with the consensus estimate at $11.2 million but with adjusted EBITDA slightly below the Street’s forecast at $2.9 million, owing to higher than expected G&A and R&D costs.
Rosenberg revised his 2023 estimates upward on Vitalhub and is calling for revenue of $48.9 million (previously $46.4 million) and adjusted EBITDA of $11.3 million (previously $11.0 million). The analyst noted that Vitalhub management is expecting strong growth to continue in 2023, with opportunities for cross-selling its UK products into Canada and Australia as part of the story.
“The company has announced several new contracts across the U.K.’s NHS, which are contributing to a growing recurring revenue base. VHI has an attractive financial profile with double-digit organic growth, gross margins of >75 per cent, and strong secular tailwinds,” Rosenberg wrote.
“We expect M&A to further contribute to growth given an active pipeline and strong balance sheet. Shares trade at a discount to healthcare tech peers and we expect the valuation discount to close as the company scales,” he said.
On valuation, Rosenberg is using a 3.5x (previously 4.0x) multiple of his 2024 revenue estimate to generate a 12-month target price of $4.50 per share (unchanged), with the lowered multiple due to what he sees as a “tougher outlook” in the macro environment. At press time, Rosenberg’s $4.50 target reflected a projected return of 70 per cent.
“Shares trade at 1.8x 2024e revenue versus peers at 2.2x. Our comparables include Canadian tech consolidators and healthcare-focused technology names. We believe VHI’s traction in a leading sector, attractive financial profile and recurring revenue make it a compelling investment opportunity,” he said.