TSX:DHT.UN - Post by User
Post by
retiredcfon Nov 28, 2023 9:09am
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Post# 35755888
More RBC
More RBCNo change to either target. GLTA
Outperform
TSX: DHT-U; CAD 12.34
Price Target CAD 18.00
DRI Healthcare Trust
NDR takeaways - focus shifting to upcoming deals and ultimate compounding effect on the business
Our view: We recently hosted NDRs with DRI Healthcare management in several CDN cities. Investor interest continues to grow given Q3 equity financings, the expanded debt facility and recent investments (notably Orserdu). In our view, as DRI continues to execute, the discount to NAV should close and the stock could eventually trade at a premium to NAV similar to other royalty peers, reflecting the optionality inherent in DRI’s business model. Cash flow generated by existing assets may be redeployed into acquisitions of new royalty assets on an accretive basis, with potential for long-term organic upside. Outperform with a C$18 PT.
Key points:
Investor focus shifts to opportunities and compounding effect of cash flows. We noted a shift in investor focus as DRI has addressed the previously anticipated decline in cash royalties (cash royalty receipts were expected to decline ~60% between 2022E-25E, at the IPO in early 2021) but we now estimate cash royalty receipts to grow at a CAGR of ~19.1% (2022A-2025E) and at a CAGR of ~2.9% (2022A-2030E). Not surprisingly, investor focus has shifted toward opportunities in the current macro environment and the compounding effect of cash flows inherent in DRI's model. We note DRI has $300MM+ of available liquidity to deploy, aided by the two equity offerings in Q3 and increased debt capacity (here).
Deal pipeline to serve as catalyst - potential for at least one royalty transaction before year-end. Management noted that the deal pipeline remains more robust than ever with an estimated ~$3B in opportunities, of which 12 are near term (potential aggregate deployment of ~$1.4B). Notably, we believe the company could close on at least one royalty transaction by year-end with several more in early 2024 (all with 15+% expected IRRs).
Greater opportunities with higher IRRs for DRI in the current macro backdrop. Management highlighted the strong deal environment for royalty transactions. There remains significant interest for royalty financing primarily due to the state of the public markets today. Many biotech companies that went public over the last five years are in need of cash, however, public markets are currently not conducive to providing that capital. As such, these companies are approaching DRI for non-dilutive funding at relatively attractive terms.
Concentration risk limited. Management noted its robust process of limiting concentration risk (considers 5-6 different approaches to measure concentration including concentration by drug, therapeutic area, average weighted remaining life of assets, credit rating of the counterparty, etc.). Management also noted that any concentration above 25% is also vetted by the company's creditors.