That was one heck of a Quarter yesterday and given how far it has fallen I still think this is very buyable. So much so, it falls into my Top 5 pick list for 2022.
 
The microcap market has gotten smoked ever since Q3 results came out across the board during the Third/Fourth week of November and then illiquidity and tax loss selling took over.

 
For some perspective, On May 21, 2021 PHA reported their fiscal Q2 (Jan – Mar) In the midst of the Delta wave and reported $17M in revenue and $1.7M in EBITDA and 269,500 Billable Hours and the stock opened that day at 1.42/share.
 
Relative to today, On December 21, 2021 PHA reported their fiscal Q4 (Jul – Sep) during the easing of almost all restrictions and reported $17.6M in revenue and $1.7M in EBITDA and 246,142 Billable Hours and the stock opened that day at 0.75/share.
 
Pretty darn goo for a post COVID world… oh wait, Omicron…
 
How can you not like that setup.

With trading days dwindling in 2021 I am going to lay out my second Top 5 for 2022.
 



Lets Jump In;
 

1) PHA – Premier Health of America Inc.
 
 

What to Expect in 2022
 

Sadly, first thing we need to still address is COVID. With no fans in the Bell Centre in Montreal and Quebec shutting down from this wave of Omicron this clearly creates a surge of demand for PHA services in the core markets. During the peak waves there is in my estimate a 15-20% increase in pick-up of demand for PHA services from the healthcare community alone.
 

That leads well into my next point and the Quebec agency issue during the state of emergency period in Quebec that led to the compression of EBITDA margin and some billable hours in Q3/Q4. Given how quickly Gross & EBITDA margins recovered in Q4 shows that they are already well on the way to solve this issue. On the transport side, we have already seen the costs hit the income statement and we should start to see the revenues come through, with a fleet now of 41 transport vehicles that is addition to billable hours and the second paratransit launching post Q4 there is a lot of organic growth to come through in FY22 that should be in addition to any billable hour growth. The efficiency of this transport division should increase greatly in FY22 as they take delivery of new transport vehicle on lease instead of on balance sheet which should free up further capital.
 
That leads right into geographical expansion, the Holy Grail for this name with such an asset light scalable model. There is something about these Quebec based businesses that always seem to trade a discount to comparable names based in Toronto or Vancouver. There was something in the last release that tell you everything you need to know;
 
“The integration of the two entities enabled PHA to reach an estimated 25% market share in the province of Quebec. This was an important short-term objective and a trigger for Premier Health to start its geographical expansion in other Canadian provinces.”
 
With the $27M Credit Facility from RBC already in place they have the ability to go on the acquisition trail again now that they have been able to stabilize their Quebec based business following the Agency and Transport business lines in Q3 so quickly. They were able to acquire Nursing Solutions for 4.3x EBITDA and Code Bleu for 4.4x EBITDA. They have the balance sheet capacity and capability to tuck in another 2-3 of these in FY22. If they find an Ontario deal… Look out, this could re-rate higher and fast.
 
Just want to touch on one more thing here and is what I love to see in these microcaps which is free upside optionality. Rekruti the Canadian Based AI Recruiting engine that was launched last summer, with a new CTO in place there could be some significant developments on the tech side which is not built into the projections at this point.
 

 
On the Numbers
 
$85M Revenue Estimate – There is two components here, the organic growth side and the acquisition side. Organically with Omicron accelerating and provinces and the healthcare system stretched I believe there is going to be increased demand for their services throughout FY22. Add the paratransit division that is really just being launched with $200K in revenue in FY21 Q4 of an $18M contract I get to a $70-75M in organic revenue. Next acquisitions, If we assume a comparable multiples in the 4-5x EBITDA range or 0.5-0.6x Sales they could acquire $10-15M in revenue for $5.5-6.0M which could be covered out of cashflow of the business alone. You start leaning on that $27M Credit Facility and you could do something much more transformational similar to that initial Code Bleu deal.
 
$9M EBITDA Estimate – I believe they caught themselves even by surprise at how quickly the profitability of the business came back. They were guiding for another $1.3-1.4M EBITDA quarter but they were able to pull the margin back up to the 10% range within a single Q. I think there is at least another 100-200 basis points to pull out of the business with the existing footprint especially on the paratransit side as it normalizes and the new transport vehicles are added to the fleet. This is a scale business. As they are able to add node to their network from further acquisition, I don’t see why they cant push EBITDA margin back up to a low-mid teen level.
 
 
 
On Valuation
 
So looking to FY22 Premier Health of America Inc. is trading 0.5x Sales or 5x EBITDA with 222% FY21 growth & 28% growth in FY22. With a lot of balance sheet capacity to hit the acquisition program much harder than I have laid out above.

These asset light scalable business models in these highly fragmented industries have such long runways for growth especially as the acquisition programs get going. They become cashflow machines and they are able to keep funneling the money back into growth.  
 
Especially when they access to capital at such cheap rates. Even before PHA had their $27M RBC Credit Facility in place they were borrowing on a revolving facility at 2.45% and two term loans one at 2.70% & 6.25% respectively. The hurdle rate to earn back your cost of capital is much lower when you have access to capital at such cheap rates.   

If I put a 12-14x EBITDA figure on the business I get to a valuation target of 1.80 – 2.10/share or 1.95/share at the midpoint or 140% upside. All with the free kicker of Rekruti AI Recruiting Platform
 
Doesn’t seem so crazy when you take this full circle back to that May 21, 2021 close six plus months ago at 1.40/share. Take advantage of the tax loss selling….
 

1) Zoomd Technologies Inc. ( Zoomd Technologies Ltd | V.ZOMD Stock Message Board & Forum | Stockhouse )
 
2) Premier Health of America Inc.
 
3) Tomorrow…. We will have to wait and see!
 
 

 
To be continued… 3/5 coming tomorrow
 
 

VERY LONG