Echelon Capital Touting its “laser-focused” acquisition strategy and seeing a number of “attractive” investment drivers, Echelon Capital analyst Stefan Quenneville initiated coverage of Hamilton Thorne Ltd. with a “buy” rating.
“HTL has demonstrated a strong track record of growth with a five-year revenue CAGR [compound annual growth rate] of 32 per cent and Adjusted EBITDA of 43 per cent, driven by double-digit organic growth supplemented by an active M&A strategy,” he said. “HTL’s historical roots were established by its leadership in laser equipment. However, in recent years, the Company has engaged in a series of M&A transactions that have propelled it to be one of the few vertically integrated players in the industry, providing a broad portfolio of products and services that have diversified its revenue base as well meaningfully broadened its geographic footprint.
“HTL now generates 53 per cent of its revenue from its consumables and services segments, which exhibit high customer switching costs and can be considered sticky, recurring type businesses. Over the last five years, revenue contribution from the Company’s consumables and services segments has grown by a CAGR of 89 per cent. This is more than 5 times the Company’s capital equipment sales five-year CAGR growth of 16 per cent. This growth has been largely driven by the acquisitions of Embryotech in 2016 and Gynemed in 2017.”
Mr. Quenneville called the Massachusetts-based company a “rare public IVF industry pure-play in niche industry with high barriers to entry,” noting most of its competitors are private or part of a larger conglomerate. He said that positions it as “one of the few public options for investors to play in this attractive industry.”
The analyst also pointed to the fact that the IVF industry has a 5-10-per-cent secular growth rate and has proven recession resistant.
“The ongoing COVID-19 pandemic initially resulted in the temporary closure of many fertility treatment clinics as they worked to implement safeguards to address COVID risks before reopening,” he said. “With restrictions on fertility treatment clinics now largely lifted, we anticipate a return to baseline demand for fertility treatments and a return to growth for HTL in 2021.”
Mr. Quenneville set a target of $1.80 per share. The current average on the Street is $1.75.
“We see room for EBITDA margin expansion, as the Company is set to roll out its line of culture media consumables in the U.S. in the coming year,” the analyst said. “The recurring nature of revenues from this line of consumables is likely to support sustained margin expansion by driving regular periodic orders from its customers, and the Company’s strategy of acquiring complementary assets in the IVF space is likely to support its efforts to gain a larger wallet-share from IVF clinics and laboratory operators.”