WELL Health Technologies is good for a double, says Raymond James

Calling it the true centre of gravity in Canada’s privately-held healthcare market, Raymond James analyst Michael W. Freeman delivered a report to clients on Thursday on WELL Health Technologies (WELL Health Technologies Stock Quote, Charts, News, Analysts, Financials TSX:WELL) and kept an “Outperform” rating on the stock.

“It’s clear that WELL is laser-focused on executing M&A on both sides of the border this year, targeting deals to grow WELL’s strong Canadian clinic businesses, and on building WELL’s U.S. healthcare ecosystem,” Freeman wrote. “The company appears to be active on a deep deal pipeline, seizing on extremely attractive pricing observed in certain corners of the market.”

Vancouver-headquartered WELL Health announced on Thursday the acquisition by its wholly owned subsidiary CRH Medical of Atlanta-based CarePlus Management. CarePlus has three main segments: a staffing services for anaesthesia providers business called RADAR Healthcare Providers, a clinical Anesthesia Services business and Premier Choice Billing, which has billing, revenue cycle management (RCM) and collection services for healthcare entities. 

WELL said CRH, a gastroenterology and anaesthesia provider in the US, recently made a strategic investment in Graphium Health, a leading electronic medical records business focused on anaesthesia practices, with the aim now being to tech-enable healthcare providers that participate in CarePlus’ RADAR business using Graphium and other digitization initiatives from the WELL portfolio.

“This acquisition marks a milestone in our journey for continued growth and diversification of CRH’s business in specialties beyond gastroenterology,” said WELL Founder and CEO Hamed Shahbazi in a press release.

Freeman said he’s pleased that WELL is working to turn CRH Medical from a mature business into an area of high-growth and that WELL is adding infrastructure to serve its US businesses.

“This strategy reminds us of WELL’s early days in Canada, where the company became, over about five years, the true centre of gravity in privately-held healthcare,” he said.

WELL did not mention a price for CarePlus in its announcement but it did say it was boosting its 2023 revenue guidance from the previous $690-$710 million to $740-$760 million. Freeman commented that this likely means CarePlus will be contributing about $40-$45 million in revenue this year, putting the business at about an $80-$90 million revenue run rate.

“We expect CarePlus is, today, a relatively low EBITDA margin business, though WELL has a proven history in growing break- even businesses to about ten per cent EBITDA margins within ~12 months post-acquisition. Our estimate of acquisition price for this type of transaction: ~$30-40 million,” Freeman wrote.

With his “Outperform” rating, Freeman maintained a 12-month target price on WELL of $8.50 per share, which at press time represented a projected return of 98 per cent.

Disclosure: WELL Health Technologies is an annual sponsor of Cantech Letter, and Nick Waddell and Jayson MacLean own WELL shares.