Direct Path to 100M+ Revenue & 20M+ EBITDA Business…What a start to the year, I have been quite for a bit but I thought I would come back now that as the fast money moves on so we can get back to talking fundamentals rather than day to day stock movements.
The title of this post gives you a clear idea where I see this business going, you put what valuation on it, my simple answer; HIGHER!!!
Here’s how I See it.
Revenue – 100M Run rate by Year End
1. Keep in mind that the two small tuck in deals done in mid to late December would not of even been included and fully integrated into the business yet. – INCREMENTAL REVENUE $1M/Annually
2. The collapsing CDN dollar (USD/CAD 1.35) also provides a 3-5% tailwind to revenues YoY for a 100% US based business. – INCREMENTAL REVENUE $3-4M/Annually
3. Total Patients Serviced continues to also grow mid single digits (Q1 34,362 up 4% YoY). – INCREMENTAL REVENUE $3M/Annually
4. I have been BULLED up for a year on higher margin respiratory resupply business and setups continues to grow strongly in the double-digit mark (Q1 11,279 up 19% YoY). – INCREMENTAL REVENUE $3M/Annually
5. Cashed up to Pursue acquisition Program now with $21.25M cash less $8.625M in convert that must be repaid this summer leaves $12.625M in deployed cash. – INCREMENTAL REVENUE $20M/Annually*
*Costal Med Tech Inc. acquisition done this fall was purchased for 0.25x Sales & 1.00x EBITDA – assumption used in 5) $10M in deployed capital for 0.50x Sales purchase multiple
Add it all up and incremental revenue on an annualized basis can be up of $30.5M with no additional debt or equity financing and still have cash on the balance sheet that is supplemented by free cash flow the business is now generating.
Based on Q1 Revenue figure of $21.7M annualized to $86.8M add the $30.5M in annualized revenue additions that I laid out you have a revenue run rate of $117.3M!!!
The acquisition program is critical but not necessary for the business to excel.
EBITDA – 20M+ Run Rate
Company is already almost there what a change from a year ago. Can’t underestimate the importance of their centralized billing platform resulting in the significant bad debt reduction alongside SKU rationalization and growth in the respiratory resupply business that runs much higher margins.
If you base care a 20% EBITDA margin on my 117.3M Run rate Revenue figure by year end I get to a EBITDA figure of 23.5M in EBITDA.
I think there is more likely upside rather than downside to the EBITDA margin still as they grow the business, I always come back to the VMD.TO business running at 25-27% EBITDA margins and I don’t see why Protech cant push closer to 25% rather than 20% over the mid to long term.
Valuation
Using a 90M share count and a 117.3M Revenue Run rate by year end with a base case of 23.5M EBITDA (20% margin) with a 8-10x EBITDA multiple gives me a target price of 2.10 – 2.60/share or 2.35/share at the midpoint or 160% upside from the current share price.
Anything under 1.00/share I think looks real good, I was adding back to my position today.
Story has been de-risked with the balance sheet addressed and is a better investment today at 0.90/share relative to 0.60/share at the beginning of the year when balance sheet uncertainties were still up in the air. As the hot money exits we will take another leg up because the underlying fundamental story has improved by more than the stock price.
LONG