TD Healthcare Tech/Services: Q4/F23 Preview
Tailwinds Ahead from Increased Federal Healthcare Investments
TD Investment Conclusion
Much-needed (federal) investment into Canada's healthcare system has continued in
recent months, including the $3.1bln agreement with Ontario announced this month
as part of a $46bln planned increase in Canada Health Transfer. Meanwhile, the
Canadian Dental Care Plan is set to launch this May, with an estimated ~9mm lower-
income Canadians without dental insurance set to get coverage for basic dental
services.
Within our coverage universe, M&A continues to be a key priority for WELL Health
and dentalcorp, which should help drive continued double-digit revenue growth
in the coming years. Both companies have plenty of runway ahead, as they
further consolidate the very fragmented Canadian medical clinic and dental practice
markets, respectively. Both are also focused on improving profitability in 2024. At
LifeSpeak, we will be looking for signs of the much-needed return to growth.
WELL Health (WELL-T; BUY; C$8.00 target price) — Supported by strong patient
visit/booking data in Q4/F23, WELL expects to deliver another record-revenue
quarter, driven by its active M&A program and continued strong double-digit organic
growth. It also expects to report record quarterly Adjusted EBITDA and positive
EPS on both an adjusted and unadjusted basis (details here). We believe WELL
is poised to continue its >four-year streak of beating consensus, while we expect
F2024 revenue guidance to be raised along with stronger Adjusted EBITDA growth
this year, helped by post-acquisition and other additional cost-optimization initiatives.
dentalcorp (DNTL-T; BUY; C$10.50 target price) — We are expecting Q4/F23
results in line with management's guidance, which calls for 9.0-10.0% revenue
growth (5.0-6.0% SPRG growth) and Adjusted EBITDA margins of ~18.2%. We
expect a pickup in M&A activity in F2024, with a steady improvement in margins and
leverage levels. We have increased our target price to C$10.50 (from C$9.00),
based on 11x our F2025 (was F2024) Adjusted EBITDA (Pre-IFRS-16) estimate.
LifeSpeak (LSPK-T; HOLD; C$0.45 target price) — Our estimates are in line with
management's commentary last quarter, calling for sequentially flat revenue and
Adjusted EBITDA. We are focused on signs indicating a (potential) return to revenue/
ARR growth and any renegotiation updates on its term loan, which matures in a year.