In order the clarify the argument about Scotia's target price the report is below. In my opinion, the fact that an analyst would raise his target price after what occured on Friday and Monday is a strong statement of his confidence in the company and I bet he knows the inner workings of the company and has much more management access than we do.
1-Yr. Target C$10.25 C$9.75
Adj EBITDA (M)18E $43 $42
CRH Medical Corporation
Q1 Preview - Focused on Reimbursement and Margins
OUR TAKE: CRH is scheduled to announce Q1 results on April 26, 2017 after market
close and will hold a conference call the following day. We expect a relatively straight
forward quarter from an operational perspective as only 2 small acquisitions were
completed during the quarter. In our opinion, the results are likely to be overshadowed
by management's commentary related to growth, reimbursement, and long-term margin
sustainability, particularly following the share price decline over the last two trading
days which we believe occurred in response to a short report that questioned these
areas. We will be focused on any commentary related to volume growth, reimbursement
trends, EBITDA margins, and contract renewals as they remain key to our positive
outlook. We maintain our Sector Outperform rating ahead of the quarter.
Consolidated Results: We forecast Q1 revenue of $22.2M,EBITDA of $11.5M,
and EBITDA margin of 51.8%. We expect CRH shareholder EBITDA (excluding non
controlling interest) to be $8.6M, up 45.2% YoY. Consensus is calling for revenue
of $21.4M and shareholder EBITDA of $8.1M . Exhibit 1 highlights the key metrics
associated with our Q1 estimates. Exhibit 5 details our consolidated forecasts.
Anesthesia Services: We forecast the anesthesia services business to achieve
procedure volumes of 43,259, revenue per case of $448, revenues of $19.4M and an
EBITDA of $10.5M (Exhibit 2). This forecast implies 71.2% growth which is largely due
to the acquisition of three anesthesia practices in Q2 2016. Note we updated our model
to include the small Kissimmee, FL, acquisition that closed in mid-March 2017 but this
acquisition is expected to have a minimal impact on Q1.
Product Sales: The Product Sales segment calls for the company to have trained 2,419
physicians (+8.0% YoY) as of the end of Q1, revenue from sales of the O’Regan system
of $2.8 million, and EBITDA of $1.7M. These estimates imply 17.5% top line growth and
23.5% growth in EBITDA (see Exhibit 3).
Price Target Increase: We have increased our price target to $10.25 from $9.75. Our
target remains based on a 2017 DCF valuation weighted 50/50 between our base case
and acquisition scenarios. The increase in the target is due to both the inclusion of the
Kissimmee, FL, practice and a stronger U.S. dollar.