CIBC 2 (Upgrade)EQUITY RESEARCH
March 3, 2022 Earnings Update
ANDLAUER HEALTHCARE GROUP, INC.
Strong Revenue Outlook With Steady Margins Is A Winning
Formula
Our Conclusion
The start to 2022 has been a volatile one with inflation, supply chain issues, and questions regarding where we are with the pandemic facing the market. With this backdrop, AND again showed why it remains a steady ship in these rough waters. Its strong revenue pipeline, which only seems to be getting stronger, and its steady margin profile despite inflation pressures provide investors with a low beta multi-year compounder. We raise our price target to $56 from $54 as our estimates move higher. We have a Neutral rating on AND given its near-term valuation metrics, but continue to have a positive long-term outlook on the company.
Key Points
Organic Revenue Growth Continues To Surprise To The Upside: We
continue to see AND’s revenue surprise to the upside, even when excluding the benefits from COVID-19 volumes. For Q4/21, revenue came in at $133MM, but included $31MM from recent acquisitions and $7MM from COVID-19-related revenue (nil in Q4/20). That suggests that “organic” revenue growth was ~$8MM, up ~9% Y/Y. While higher fuel surcharges would have been a tailwind, we continue to see AND’s top line exhibit a high level of resiliency in the face of a volatile macro environment. We would also note that not all end markets serviced by AND are performing well, such as demand for travel vaccines. Prior to the pandemic, we pegged AND’s organic revenue growth at ~6%-7% which now looks to be conservative. Looking at the domestic market for example, AND noted that given its performance during the pandemic, one of the provincial jurisdictions has awarded the company the flu vaccine distribution.
M&A Activity Has Picked Up: AND closed the acquisition of Logistics
Support Units (LSU), a Quebec-based third-party logistics provider, for
$30MM ($22.5MM in cash and the remainder in AND shares). We suspect
AND purchased LSU in the high-single-digit EBITDA multiple range,
suggesting an EBITDA of ~$4MM. In the past year and a half, AND has
acquired Skelton, Boyle, TDS and MCI. We continue to see AND acquire
operations that improve its density, network reach and/or service offering.
For example, the acquisition of LSU brings the leading logistics provider in
Quebec under the AND umbrella. The company noted its M&A pipeline
remains healthy and its balance sheet has ample room to support inorganic growth (exited 2021 with $25MM in cash and $89MM available on its revolving credit facility)