WELL Health Technologies Corp.
(WELL-T) C$5.01
Q4/F21: Going (More) Organic Event
We are updating our estimates following WELL's Q4/F21 results. For our initial take, click here.
Impact: NEUTRAL
Increased focus on organic growth. Management expects M&A activity to slow in 2022 following a very busy 2021 that saw >20 acquisitions and investments, including the two major acquisitions of CRH Medical and MyHealth. This is not surprising, in our view, given the more challenging fundraising environment (although we note that WELL has >$200mm available from its credit facilities and ~$50mm in cash), but it also likely reflects WELL's much larger, diversified, and financially stronger business compared with a year ago. Management stated that potential M&A activities will be focused on tuck-in acquisitions that can help strengthen its existing business lines.
WELL continues to make significant investments to deliver strong organic growth, which we believe should help it deliver low-double-digit organic growth that we believe is implied by the 2022 revenue guidance of >$500mm.
A more balanced approach to capital allocation. Historically, the vast majority of WELL's capital had been used for acquisitions. However, the winds look to be shifting, with an increased focus on driving strong/stronger organic growth and also share buybacks, given the pullback in the stock.
Looking to unlock the value of Circle Medical and Wisp. Rapid growth continues at Circle Medical (>US$40mm in ARR vs. <US$5mm when it was acquired ~1.5 years ago) and Wisp (>US$40mm in ARR vs. ~US$30mm when it was acquired six months ago), with their combined ARR up another ~15% from January 2022 levels. We are pleasantly surprised that despite the ramp in growth investments, WELL indicated that the businesses are roughly breakeven.
Management continues to believe that its valuation does not properly reflect the inherent value of Circle Medical and Wisp and therefore, it may look to monetize them (e.g., IPO), possibly later this year, subject to market conditions.
TD Investment Conclusion
We are maintaining our C$9.00 target price, based on our sum-of-the-parts valuation. At just 2.7x EV/Revenue (C2023E), we believe the stock looks attractively valued, given its strong organic growth and healthy margins and FCF generation, with potential upside from a Circle Medical/Wisp monetization event.