HS Govtech Solutions Inc C.HS

Updated Price Targets - New Long-Term Target Introduction

[prokofiev]

Great news for HealthSpace and it shareholders. Now that they have proven they can land new business, I would apply a 3.0x multiple for the base business as there is a strategic value to is (as opposed to 2.0x previously). The new SaaS business should be valued at a higher multiple. If you look at successful companies serving the public sector like Tyler Technologies ($7.8B mkt cap) they have traded between 4-8x, while posting mid teens average growth. HS should grow faster than this (higher growth = higher multiple), but would have a liquidity and micro cap company discounted. As such I think an 6x revenues multiple is appropriate.

Revenue:

• Base business = US$2.0M
• New contract = US$0.62M (30% increase is quite significant)
• Total recurring revenue: US$2.62M

Price Target (Base Case)

• Base:  3x US$2M = $6M
• Cloud: 6x US0.6M = $3.6M
• Enterprise Value (C$): (3.6+6.0) * 1.30 (FX) = $12.5M
• Less $1.2M of debt
• $11.3M of market cap
• 166.2M fully diluted shares outstanding (from the company’s latest presentation)
• Price per share: $0.068

Price Target (Bull Case)

• Assuming they win another similar contract of $0.6M/year
• Base:  3x US$2M = $6M
• Cloud: 6x US1.2M = $7.2M
• Enterprise Value (C$): (7.2+6.0) * 1.30 (FX) = $17.2M
• Less $1.2M of debt
• $16M of market cap
• 166.2M fully diluted shares outstanding (from the company’s latest presentation)
• Price per share: $0.096

Price Target (Long-Term Target – 3 years?)

• Assuming they win 5 similar contracts of $0.6M/year
• Base:  3x US$2M = $6M
• Cloud: 6x US3.6M = $21.6M
• Enterprise Value (C$): (21.6+6.0) * 1.30 (FX) = $35.9
• Assuming debt is paid down with FCF over the years
• $35.9M of market cap
• 166.2M fully diluted shares outstanding (from the company’s latest presentation)
• Price per share: $0.216

Best,

Prokofiev