WELL Health Technologies has a 123 per cent upside! Eight Capital analyst Christian Sgro is still feeling good about WELL Health Technologies (WELL Health Technologies Stock Quote, Chart, News, Analysts, Financials TSX:WELL), maintaining his “Buy” rating and target price of $13.00/share for a projected return of 123 per cent in an update to clients on Thursday.
Founded in 2010 and headquartered in Vancouver, WELL Health Technologies owns and operates a portfolio of primary healthcare facilities in Canada and the United States, while also providing digital electronic medical records (EMR) software services and telehealth services, with nearly 30 clinics it operates on its own and over 2,000 clinics in Canada to which it provides software solutions.
Sgro’s latest analysis comes after WELL Health announced it had completed an oversubscribed $70 million bought deal offering of convertible senior unsecured debentures, which Kadve noted will strengthen the company’s balance sheet and provide fuel for continued strategic M&A under its core platform..
“We expect the company’s decentralized approach to capital allocation to drive accretive M&A growth across all business units as the organic growth story comes more into focus,” Sgro said. “With the additional capital, we believe the company can continue adding scale under all banners while identifying cross-border and cross-sell opportunities to expand reach.”
The $1,000 debentures, which have a semi-annual coupon rate of 5.5 per cent per annum and a conversion price of $9.23 per WELL common share, are due by the end of 2026, along with $5 million in aggregate principal of debentures issued with the over-allotment option, which was fully exercised. The proceeds are mainly being used to repay $32.5 million in debt, with an additional $20 million being used for future M&A activity.
According to Kadve, the company noted interest from a large Canadian pension fund manager in its initial release and announced participation from insiders with the closing.
“We wish to thank the investment community and in particular the high-quality institutional investors who have supported us in this offering,” said Hamed Shahbazi, Chairman and CEO of WELL in the company’s November 25 press release. “These funds will allow us to continue to execute on our growth strategy for 2022 and beyond, and we look forward to continuing our tech enablement of healthcare practitioners.”
All told, the company’s debt balance is now down to $270 million excluding the debentures, with the potential to borrow another $300 million under the current CRH and MyHealth credit facilities.
On account of strength in the company’s third quarter financial report and recent tuck-in acquisitions, Sgro has revised some of his financial projections, namely at the top line. Following the company’s guidance of a $450 million annual run rate, Sgro has increased his revenue forecast for the final quarter of 2021 to $112.1 million from $110.7 million, producing a year-over-year increase of 552.4 per cent and pushing Sgro’s overall 2021 projection up to $298.8 million from $293.5 million, good for a year-over-year increase of 494.7 per cent.
Sgro has also raised his 2022 revenue estimate to $483.2 million from $480.3 million for a year-over-year increase of 61.7 per cent, with virtual services forecasted to increase to over 26 per cent of the company’s revenue mix at $126.6 million.
The revenue projections are much higher than those of the consensus, which estimates $104.7 million for Q4 for $283.7 million total in 2021, followed by a $461 million estimate for 2022.
Sgro forecasts minimal movement in the company’s gross margin, with an increase to 49.3 per cent ($147.3 million) from 49.2 per cent ($144.3 million) in play for 2021, while lowering his margin projection to 51.3 per cent ($247.9 million) from 51.7 per cent ($248.4 million) in 2022.
Meanwhile, on account of further investments, Sgro has lowered his estimates on adjusted EBITDA to shareholders, now projecting a 13.1 per cent margin ($39 million) for 2021 compared to his initial estimate of 13.4 per cent ($39.4 million), while lowering his 2022 estimate to a 13.9 per cent margin ($67.3 million) from 16.3 per cent ($78.3 million).
Sgro’s valuation data has the company’s EV/Revenue dropping from a multiple of 30.3x in 2020 to a projected 5.1x in 2021, then to 3.2x in 2022. In regards to EV/adjusted EBITDA, Sgro forecasts 2021 at a projected 39x, with a forecasted drop to 22.6x for 2022.
“We are encouraged that WELL has the capacity to invest in organic initiatives (namely high-growth telehealth segments) as well as execute on opportunistic M&A in North America as opportunities arise,” Sgro said. “The company has noted interest in e-referral software, prescription delivery, and other avenues to broaden the platform in Canada.”
Overall, WELL Health’s stock price is down 25.2 per cent for the year to date, hitting a high point of $9.23/share on February 24 before going back and forth for the majority of the year and hitting a low of $5.81/share on Tuesday.