Another reportClarus initiated with a 5.25 target.
Waking Up to Ample Booty
We are initiating coverage on CRH Medical Corporation with a BUY recommendation and a 12-month target price of $5.25 per share. Consolidation opportunity in a highly fragmented industry. Conservatively estimated at a US$1.7 billion opportunity, the gastroenterology endoscopy anesthesiology services business is only approximately 5% consolidated. An aging demographic should drive further growth in the space.
Established physician network provides strategic deal sourcing. With a current network of >1900 gastroenterology physicians, CRH has a unique opportunity to identify under-the-radar acquisition targets.
16 consecutively profitable quarters in legacy device business. Hemorrhoid treatment represents a conservative $375MM opportunity, of which CRH has penetrated only ~2%. We estimate stable revenue growth Y/Y at 15%, partly driven by assumed synergies with the anesthesiology services business.
ID Biomedical Corporation alumni. Experienced management and board members who have “done it before” specifically in the healthcare sector.
Strong Growth. We estimate cumulative revenues growing 21% for 2016YE before 2016 acquisitions. Our model estimates CRH generates approximately $16.2MM of free cash (before CAPEX), for a 6.5% FCF yield, rising to 8.5% in 2016.
Our valuation is based on a 12x terminal 2016 EV/EBITDA multiple, a 10% discount rate and conservative revenue estimates. We assume a $1.25 USD/CAD exchange rate