Yoga Enterprise
Expect WELL Health Technologies to remain “very acquisitive,” says PI Financial
GUT health technologies (WELL Health Technologies Stock Price, Chart, News, Analysts, Financials TSX: WELL) received coverage starting from PI Financial on Tuesday. Analyst Kris Thompson said WELL should outperform health care growth projections as it grows and acquires more companies.
Founded in Vancouver in 2017, WELL Health started out as a yoga company before moving on to acquiring resident medical clinics to complete its digital-first operating model. In 2018, WELL sold its yoga business and acquired a total of 19 clinics in BC. In 2019, the company began buying healthcare software providers that sold open source electronic health record (EMR) solutions to clinics (OSCAR).
In 2020, WELL made ten acquisitions, eight wholly owned and two majority as well as two investments. In addition, three equity financings for gross proceeds of US $ 118 million and one convertible debt loan for US $ 11 million have now been converted.
Currently, WELL has 27 clinics, the third largest EMR business in Canada, telemedicine platforms in the US and Canada, a marketplace for health applications, cybersecurity resources, and related health resources. Last month, WELL completed its largest acquisition to date in CHR Medical, a US-based gastroenterology company, for $ 372.9 million.
Commenting on WELL’s M&A capabilities, Thompson said the CRH acquisition will add significant earnings to WELL’s earnings over the coming quarters. This puts the company in a good position to use the cash flow from the CRH acquisition for new growth opportunities in the USA.
“WELL is a healthcare consolidator that needs ongoing cash infusions to conduct mergers and acquisitions. While the company has been actively raising equity, the CRH acquisition catapulted consolidated cash flow visibility from approaching breakeven to $ 30 million a year and growing, ”Thompson wrote.
“In addition, WELL is supported by the Hong Kong billionaire Li Ka-Shing. Mr. Ka-Shing was the primary investor in the CRH acquisition finance with an equity fund of $ 302 million ($ 9.80 / sh) and signed an equity investment of $ 100 million with a group of investors including Horizon Ventures, “said he.
WELL Health’s share price rose in 2020 and returned 416 percent over the year. In 2021, the stock was up and down and currently stands at nearly 11 percent.
Thompson sees more upside potential and starts GUT with a buy rating and a target price of $ 10.50, which at the time of publication represents a projected one-year return of 46 percent.
Regarding the assessment, Thompson said that WELL’s peer group in the healthcare technology space has a wide range of multipliers based on size, profitability, segment focus and growth. The analyst derived his target from an EV / Sales multiple of 9.4x for his estimates for 2021 and 7.2 for his estimates for 2022, while companies in the clinic and omni-channel healthcare sector ranked 8, Trade 1x or 6.0x and health technology Companies trade with 7.0x or 5.5x.
“WELL is a mix of inpatient clinics in Canada, technology solutions that are growing in all segments, and a service business that generates cash flow in the US via the CRH acquisition. And the company will continue to be very active in generating new revenue streams, ”Thompson wrote.
“We therefore expect the company to quickly grow into these valuation metrics, which should become more attractive over the course of a few years. At this point, investors are paying for the growth opportunities ahead of the company in a trillion-dollar industry with many runways, ”he said.
Thompson expects WELL to have sales and net EBITDA of $ 227 million and $ 34 million in 2021 and sales and net EBITDA of $ 298 million and $ 52 million in 2022, respectively. (All information in Canadian dollars unless otherwise noted.)
WELL last reported financial data in March that showed fourth quarter 2020 revenue of $ 17.2 million, up 75 percent year over year, and adjusted EBITDA of $ 0.77 million from a loss from $ 0.31 million last year.
Thompson said WELL should have a number of catalysts in the short term to spark interest in the stock, including the company’s rapidly growing EBITDA and cash flow generation, new accumulated mergers and acquisitions, margin expansion, and a potential NASDAQ listing to that Increase investor interest.
“Given the size of the healthcare market and WELL’s relatively small market share, we expect the company to outperform the industry, which justifies a five percent terminal rate before mergers and acquisitions,” Thompson said.
“We are modeling additional M&A in our DCF in 2024 and trying to normalize EBITDA margins to reflect what CRH has achieved (~ 40 percent) and a modest improvement for the WELL business. We note that the company is likely to remain very acquisitive. At this point, investors must have confidence in the company’s M&A strategy and the company’s ability to grow into its valuation through transformative M&A, organic cross-sell opportunities, and iterative improvements in operational execution. ” he said.
Disclaimer: Jayson MacLean and Nick Waddell own interests in WELL Health Technologies and WELL is an annual sponsor of Cantech Letter.