Is Nova Leap Health a buy? (October, 2024)

Following its most recent acquisition, Ventum Capital Markets analyst Stefan Quenneville has maintained his “Buy” rating on Nova Leap Health (Nova Leap Health Stock Quote, Chart, News, Analysts, Financials TSXV:NLH).

On October 15, Nova Leap announced it had acquired the assets of an unnamed home care services business in Florida that has annual revenue of approximately $3.1-million.

“As mentioned in previous shareholder communications, we have been actively working on acquisition opportunities since re-engaging our M&A program,” CEO Chris Dobbin said. “We have been looking for opportunities in Florida for quite some time given the long-term prospects for the market. We are looking forward to supporting the existing management team, a talented group who have been successful in growing this agency.”

The analyst characterized the development.

“This morning, Nova Leap announced the signing of a definitive agreement to acquire an undisclosed home care service company located in the state of Florida for US$1.6M,” he wrote. “The deal is expected to close in November, and be immediately accretive with the target company reporting annualized first eleven months F2024 revenues of ~US$3.1M and EBITDA of ~US$345K, representing multiples of 0.5x and 4.6x, respectively. We are pleased to see the Company continue with its rekindled M&A program, which we expect to persist for the foreseeable future given the attractive demographic growth trends and fragmented market that characterize the home care industry.”

In a research update to clients October 15, Quenneville maintained his “Buy” rating and price target of $0.60 on NLH, implying a return of 150% at the time of publication.

The analyst thinks NLH will post Adjusted EBITDA of $1.8-million on revenue of $26.7-million in fiscal 2024.

“Given our forecasts had already contemplated M&A in the back half of 2024, we are not making any material adjustments to our estimates,” he added. “Therefore, we are maintaining our BUY rating and target of C$0.60. NLH currently trades at 9.3x our forecasted 2024E adj. EBITDA versus peers at 14.4x and 30.3x at the high end. We value NLH based on the average of a DCF valuation (11% WACC, 3% terminal growth) and 15x 2024E EV/EBITDA multiple. We believe a higher-end multiple is warranted due to NLH’s lower-risk payor mix, faster-expected growth, and the pure-play nature of its operations.”