The Holy Grail: Savaria Corp Valuation of 16x EBITDA…After poor numbers from another Canadian Healthcare name CHH.TO I keep scanning the TSX for healthcare names I all I find is SIS.TO, granted I own a small position in SIS.TO the relative valuation between SIS and VMD.V is too big to ignore even with VMD.V trading on the TSXV. Here’s how I see it;
Viemed Healthcare Inc. – Using 1.30 USD/CAD FX rate
A 100% US based Healthcare company that will be seeing a direct increase in profitability no matter what in 2018 due to US tax reform with a margin profile 75% gross margins with 25-30% EBITDA margins with Net Cash of 6.6M.
On my 2018 numbers I get to 80M in revenue up 31% YoY and 21M in EBITDA up 35% YoY for a valuation of 5.6x EBITDA.
VS
Savaria Corporation
A 2/3 US Based Healthcare companying that is more of a growth by acquisition story (core organic revenue growth in mid teen %) with a margin profile of 35% gross margins with 15-20% EBITDA margins with Net Debt of 32M or about 0.75x net debt/EBITDA.
On managements provided 2018 outlook of 268M in revenue up 48% YoY and a midpoint of 43.5M in EBITDA up 40% YoY for a valuation of 16.8x EBITDA.
Implications
So as a result, I can buy today a business in VMD.V that has a better margin profile, with net cash on the balance sheet, a superior organic growth rate, a 100% US growth play with only 5% of the overall TAM tapped with a comparable market cap (100M-1B mid cap space) for 1/3 of the price all because it trades on the TSXV instead of the TSX.
This is ridiculous…
As a result, if I were just to put the same 16.8x EBITDA multiple on VMD.V I would get to a target price of 9.29/share or 197% upside!!!
I am not calling for VMD to trade at that price but an interesting thought to work through the numbers.
You give any company a 16x EBITDA multiple in a fragmented market and any decent capital allocators could go out and seek accretive acquisitions that gives you upside optionality of inorganic growth alongside your organic growth initiatives, VMD.V included.
LONG