3x the EBITDA Growth at 1/3 of the Price of VMD.TO & HTL.V…Price is what you pay, value is what you get. If I isolate for comparable CDN small cap healthcare names I get back to PHM.V as the best risk reward. Ahead of earnings lets take a peek.
Isolating HTL.V, VMD.TO, WELL.V & PHM.V (FY19 Numbers)
HTL.V – 12x EBITDA w Low 20% margins and 10-20% EBITDA Growth (Upside - Strong Global pipeline that makes incremental acquisitions highly accretive with sound organic business. Downside – key man risk and acquisition integration)
VMD.TO – 7x EBITDA w Mid 20% margins and 25-30% EBITDA Growth (Upside – Strong organic growth rate. Downside – payor mix and rate cuts)
WELL.TO – EBITDA B/E essentially betting on a management team… (Upside – successfully built and sold TNC. Downside – valuation is expansive with no operation history)
PHM.V - <3x EBITDA w Low 20% margins and 70%+ EBITDA growth.
Implications for PHM.V
If you think about it, the PHM.V model is not that different than the HTL.V story if you replace the word Global with Regional. Initial lower margin equipment sales followed by higher margin resupply revenue that is sold through their network.
With core organic growth which can be supplemented by accretive acquisitions of privately held companies at lower valuations and small enough that the larger consolidators in the space wont bid up the price on. (The HTL.V story is just a couple years ahead with PHM.V stabilizing its business post spin.)
Mr. Wolff at HTL.V has demonstrated great capital discipline and Greg Crawford’s discipline not to chase and acquisition off the start I think is overlooked. His ability to grow the Patient Aids business prior to PHM.V consolidation is all you need to know.
On the downside payor mix is more diversified than the VMD.TO story so the excessive discount I believe is unwarranted.
Given the above, if I put a 10x EBITDA multiple on PHM.V considering the EBITDA growth I get to a price target of 0.40/share or 230% upside…
I don’t think I am reaching here...
Beacon Analyst uses a 12x EBITDA target and 0.40/Share Target yet he is only at 12.1M in EBITDA which I think is too low…
Its all about confidence in the management team and EBITDA margin recovery. Each Q the multiple should expand. Tuesdays earnings should be the next ratchet higher.