Gabriel Leung of Beacon Securities remains vocal in regards to VitalHub (VitalHub Stock Quote, Chart, News, Analysts, Financials TSXV:VHI), maintaining a “Buy” rating and $5/share target price for a projected return of 68 per cent in an update to clients on Monday.
Toronto-based VitalHub develops technology solutions for health and human service providers in the hospital, regional health authority, mental health, long term care, home health and community and social service sectors in Canada, the United Kingdom and the United States.
Leung’s latest analysis comes after VitalHub announced that the company’s TREAT platform has been licensed to better track the essential medical information needed to effectively treat inmates in provincially-run adult correctional institutions across Ontario, which totals approximately 8,000 inmates a day across the Ministry of the Solicitor General’s 25 institutions.
“We view this announcement as a positive development for VitalHub for several reasons,” Leung said. “First, we believe this contract represents a four per cent lift to the company’s current revenue run-rate of approximately $38 million. Second, although initially a six-year term, we believe this could represent a long-term opportunity. Third, we believe a successful deployment in Ontario could lead to additional wins in adult correctional institutions across Canada.”
The initial contract is for six years with an additional four-year option and is made up of recurring license revenue and professional services totalling approximately $9 million. According to Leung, VitalHub’s TREAT Electronic Health Record was selected following an extensive and thorough evaluation process that began in December 2019 with the issuance of a Request for Information and concluded with the Request for Bid process closing in late 2021.
Once deployed provincially, TREAT will provide caregivers with accurate, up-to-date, standardized and secure health information records.
“The TREAT solution continues to gain momentum as the leading EHR for health and human services providers in Canada,” said Niels Tofting, EVP, Business Development & Marketing in the company’s June 6 press release. “This agreement represents the second provincewide partnership that our team has earned the right to support in Canada and represents another very significant milestone for VitalHub. We expect that with the scope, scale and expertise developed, this project will in time present many more opportunities across Canada and internationally.”
The contract win comes on the heels of the company releasing its interim first quarter financial report on May 12, which was headlined by $9.4 million in revenue for a 77 per cent year-over-year increase.
VitalHub also experienced significant improvement in its margins, with the gross margin coming in at 84 per cent compared to 76 per cent at the same time in 2021, while the company’s EBITDA came in at $2.4 million compared to the $0.3 million from the comparative period in 2021.
Meanwhile, new customer billings for perpetual and recurring licenses, support, services and hardware were $8.7 million, of which $2.9 million was recognized in the quarter, with the outstanding balance of $5.8 million is deferred to be recognized as earned over the next one to five years.
The company ended the quarter with $20.8 million in cash on hand, up from $16.4 million at the end of the previous quarter.
Leung’s future financial projections remain unchanged overall, as he forecasts revenue of $37.6 million for 2022, good for a potential year-over-year increase of 52.2 per cent. Looking ahead to 2023, Leung projects a slight jump to $41.3 million for a potential year-over-year increase of 9.8 per cent.
From a valuation perspective, Leung forecasts the company’s EV/Net Revenue multiple to drop from the reported 4.6x in 2021 to a forecasted 3x in 2022, then dropping to a projected 2.7x in 2023.
Meanwhile, Leung forecasts the company’s adjusted EBITDA in 2022 to be $8.2 million for an implied margin of 21.8 per cent, which he projects to get slightly wider at a projected 23 per cent margin in 2023, signifying an EBITDA projection of $9.5 million.
In terms of valuation, Leung projects the company’s EV/adjusted EBITDA multiple to drop from the reported 24.2x in 2021 to a forecasted 13.9x in 2022, then dropping to 12x in 2023.
Going forward, Leung believes VitalHub may have plenty of growth opportunities ahead, with an additional reminder that the company has approximately $21 million in net cash available for additional acquisitions, along with a strong free cash flow.
“We believe this contract serves as a reminder that despite the slew of new and expansion bookings in the UK, VitalHub does have a strong presence in Canada and is looking to expand its customer footprint across Europe, Australia and the Middle East,” Leung said.
VitalHub’s share price has dropped by 7.3 per cent since the start of 2022, rising to a high of $3.45/share on March 29 and dropping to a low of $2.77/share on May 12.