Is VitalHub still a buy?

Following a new financing, Eight Capital analyst Christian Sgro has maintained his “Buy” rating on VitalHub (VitalHub Stock Quote, Chart, News, Analysts, Financials TSX:VHI).

On April 11, VitalHub announced the close of a $40.25-million bought deal. The company said it had earmarked the cash for acquisitions.

The analyst summarized the development.

“VitalHub announced the closing of a gross $40M equity financing, more than doubling the cash balance for the company’s consolidation strategy,” he wrote. “In combination with a stable cash generative profile and an untapped debt facility, the key use of proceeds is M&A. The company’s recent commentary regarding the pipeline and valuation expectations appears more encouraging than in prior quarters. We think the proceeds will likely be put to work sooner than later as VitalHub expands its software suite and/or geographic reach.”

In a research update to clients April 11, Sgro maintained his “Buy” rating and price target of $8.50 on VHI.

Sgro thinks VHI will post Adjusted EBITDA of $16.2-million on revenue of $59.7-million in fiscal 2024. He expects those number will improve to Adjusted EBITDA of $18.8-million on a topline of $66.3-million in fiscal 2025.

“M&A is a primary use of capital,” the analyst added. “In the company’s most recent quarterly conference call, management appeared enthusiastic about near-term opportunities. We expect some of these opportunities to reflect a gradual reset in valuation expectations and, in other cases, reflect less profitable companies in need of growth capital. VitalHub’s recent purchase prices average in the $3-8M range with valuations trending around 2-3x recurring revenues. With the capital on hand, we see the potential for a larger deal that could help VitalHub penetrate new geographies.”