TSX:DHT.UN - Post Discussion
Post by
retiredcf on Mar 01, 2024 10:30am
RBC Report
Their upside scenario target is also raised to $26.00. GLTA
Outperform
TSX: DHT-U; CAD 15.00
Price Target CAD 20.00 ↑ 19.00
DRI Healthcare Trust
Strong results aided by milestone payments; ~13% dividend increase; Robust pipeline - TP to $20
Our view: DRI remains our top choice within our coverage list for 2024 and the strength of the Q4 results, initial conservative guide (in our view) and growing potential royalty pipeline makes us even more comfortable with our view. The management team, having successfully reversed the significant royalty decline at the IPO, has positioned the company to benefit from growth through 2030 and the expected compounding effect on future returns. DRI also increased its quarterly cash dividend by ~13% to $0.0850/ unit for Q1/24 and the near-term deal pipeline remains robust with nine opportunities with potential deployment of ~$1.2B ($3.7B total).
Key points:
Results ahead of estimates. DRI reported total income of $75.8MM, well ahead of RBCe ($29.7MM) and cons. ($32.2MM) aided by $38.7MM of favourable but unexpected milestone royalty income. Cash royalty receipts of $52.3MM were ahead of RBCe ($40.0MM) aided by milestone royalty receipts of $15.4MM (vs. RBCe: $2.8MM). Q4/23 adj. EBITDA of $46.5MM was stronger than RBCe ($34.9MM) and consensus ($31.1MM).
DRI introduced a conservative guide. Management introduced guidance for the first time since its IPO, which we believe is conservative, likely based on underwriting expectations. 2024 royalty income guidance excluding milestone income and any new transactions is $153-155MM (+30%-32% y/ y). This compared to consensus revenue of ~$158MM (which likely includes milestone income) and RBCe (~$165MM, excluding milestone income).
Robust ~$3.7B deal pipeline. Management noted that the deal pipeline remains more robust than it has ever been. The near-term deal pipeline, which includes deals that could close within the next six months, consists of 9 opportunities with potential aggregate deployment of ~$1.2B. The deal size ranges between $45-250MM. The back end of the deal pipeline is composed of 28 opportunities, with a total potential value of ~$2.5B. Management noted that while opportunities are growing in the market, there are still significant barriers to entry for potential new entrants.
Quarterly dividend increased by ~13%. For Q1/24, DRI declared a cash dividend of $0.085/unit (~13% increase vs. the prior regular quarterly cash dividend of $0.075/unit) payable on 19-April-2024.
Revising estimates, increasing price target to C$20. We have updated our estimated NAV for DRI’s royalty portfolio as of Q4/23A and have increased our long-term Orserdu outlook given the strong ramp-up of Orserdu reflected in better than expected Orserdu royalties and the milestone royalties. Orserdu represents ~34% of our gross NAV. Our C$20 PT (from C $19) is based on an 1.25x operating NAV at 9%, reflecting the optionality inherent in DRI’s business model and our expectation that cash flow will be redeployed into accretive acquisitions.
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