First page of lake street report
Viemed Healthcare, Inc. BUY (VMD.TO – CAD9.26) Price Target: CAD13
Improved Visibility For Dual Listing. Affirm Buy And CAD13 PT. (Note – All figures in USD unless noted “CAD.” Since Viemed shares trade primarily on the TSX, we quote the price of the shares and our PT in Canadian dollars. The exchange rate on 7/10/2019 was CAD1.31 to $1.00. The company reports results in U.S. dollars and our model is based on U.S. dollars.)
Last night Viemed filed a registration statement on Form 10 pursuant to Section 12(b) of the Securities Exchange Act of 1934, as amended (“Exchange Act”), to submit to Exchange Act reporting in the United States. Viemed has applied for listing of the common shares of the Company on the Nasdaq Capital Market under the trading symbol “VMD.” Currently shares trade on the TSX in Canada under ticker “VMD” and in the U.S. on the OTC Market under “VIEMF.” Pursuant to a successful registration of common shares, Viemed shares will be dual-listed and, considering the Company is cash flow positive, we do not believe Viemed will raise new capital in conjunction with this registration of its shares.
Timeline Following Form 10 Filing – Assuming all Nasdaq related requirements and administrative duties are fulfilled, the SEC requires file form 10 to be publicly available for a minimum of 15 days prior to listing of the shares. Viemed is currently working through the remaining Nasdaq administrative requirements to be listed and we think it likely the shares will be listed on Nasdaq in the first half of August prior to reporting Q2’19 financial results. As required by SEC regulations, financials must be filed within 45 days of quarter end (by August 15). As a result, we expect two substantial catalysts on the near-term horizon: 1) shares listed on the Nasdaq and 2) Q2’19 financial results.
The Business – In Q1’19 Viemed’s revenue of $20.4M grew 45% y/y, gross margin expanded from 74.8% to 75.3% y/y and AEBITDA was $4.8M, up 27% y/y. Also, in combination with the Q1’19 release, management guided Q2’19 sales growth of 45% y/y at the mid-point and moderately expanding margins through the remainder of the year. We continue to believe Viemed’s non-invasive home-based ventilation provides substantial payor benefits, preferential patient comfort and, with a highly fragmented market with minimal penetration, a strong opportunity for continued organic growth.
INVESTMENT THESIS AND VALUATION
Viemed completed its separation from former parent, Protech Home Medical (Formally Patient Home Monitoring (PHM)), via a spinoff into a separate company traded on the TSX Venture Exchange (TSXV) on December 22, 2017, following a prolonged process. Viemed has delivered strong organic growth every year since its founding in 2006 except in 2016 following a 30% cut in Medicare reimbursement for respiratory care. With its solid balance sheet and entrepreneurial management, we expect the company to deliver 30%+ organic growth in the attractive U.S. home respiratory care market at least through FY19. In addition, we believe management will effectively control operational expenses resulting in strong adjusted EBITDA growth and maintained profitability making Viemed an attractive, underappreciated opportunity for investors.
VALUATION
Our CAD13 ($10) price target assumes investors will value VMD.TO at 17.0x EV/CY19 AEBITDA multiple. The math works out to 17.0x our $22M 2019 AEBITDA estimate, plus $7.4M of cash, minus $7.2M of debt (lease), divided by total estimated shares of 40M. We then convert our $10 PT to Canadian by multiplying $10 x 1.31 to arrive at CAD13.
We feel Viemed deserves to trade in-line with its peer group based off of >35% organic growth for the last 6 quarters and modeled 35% growth through FY19, its ability to be profitable while aggressively investing in the business to sustain growth, and the large untapped market opportunity (currently mid-single digit market penetration).