TD update Flash Note
Equity Research September 11, 2017
Please see the final pages of this document for important disclosure information.
Health Care/Specialty Pharma
CRH Medical Corp.
(CRH-T) C$2.68
Continued Execution of the Strategy
Lennox Gibbs
Ling Han, CFA, (Associate)
Event
This morning, CRH announced the acquisition of a 51% interest in a
gastroenterology (GI) anesthesia practice in Central Colorado. This practice
has annual revenue of $5.6 million, and it serves three Ambulatory Surgical
Centers (ASCs). The transaction was financed with CRH's credit facility and cash
on hand. According to management, the transaction is expected to be accretive to
EBITDA and cash flow. Additional details were not provided. CRH's prior transactions
were completed in the 4.0x-5.0x EV/EBITDA range.
Impact: SLIGHTLY POSITIVE
Continued Execution — This is CRH's fourth acquisition in 2017. We view CRH's
ability to complete this transaction favourably; especially considering ongoing
reimbursement uncertainty. We, nonetheless, believe that reimbursement
uncertainty may be the dominant question over the next several quarters.
Forecasts Unchanged — Our forecasts currently make provision for CRH to
acquire $4.8 million in annual revenues in H2/17. Accordingly, no changes are
required to our forecasts. CRH has acquired $14 million in revenues YTD, as
compared to $22.2 million in FY2016. As of June 30, 2017, CRH had $7.8 million
in cash and $42.2 million in long-term debt, reflecting an estimated Net-Debt-to-
EBITDA of ~1.0x.
More to Come — Looking beyond the pending rate cuts, we believe that CRH is
well positioned to create value through long-term expansion. Key considerations
include: (i) high levels of fragmentation in CRH's target market; (ii) CRH's wellestablished
relationships in the U.S. GI market; and (iii) CRH's balance sheet
strength. CRH now provides services in 31 GI-centric ASCs in seven states
(inclusive of today's acquisition).
Recommendation: HOLD
Risk: MEDIUM
12-Month Target Price: C$5.50
12-Month Dividend (Est.): C$0.00
12-Month Total Return: 105.2%
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