Our view: We are updating our views on dentalcorp ahead of the Q4/21 results on 25-Mar. The company had announced 20% y/y revenue growth for Q4/21 in January and had guided Q4/21 adj. EBITDA margins broadly similar to prior quarters. We forecast revenues of $271.1MM and adj. EBITDA of $48.7MM for Q4/21. We have revised our 2022 forecasts to account for the Omicron wave with the majority of the downward revisions in Q1/22. We reiterate our Outperform rating and $20 PT as we expect upside potential from dentalcorp's current valuation underpinned by strong EBITDA growth through acquisitions.
Key points:
Q4/21 results pre-announced, last two weeks of Q4/21 impacted by Omicron wave. We revise our revenue and EBITDA estimates for Q4/21 and CY22 to account for the surge in COVID-19 cases (Omicron variant) that started in late December-21 and impacted much of Q1/22. For Q4/21, we are forecasting revenues of $271.1MM (+20% Y/Y) and adj. EBITDA of $48.7MM (18.0% margin). We have revised our 2022 estimates with Q1/22 being the most impacted. Our revenue estimate for Q1/22 is revised lower by 11% and is increased slightly for the remaining quarters, as we expect some revenue shift from Q1 to the remaining quarters. We expect cost inflation to impact EBITDA more significantly than revenue. We now forecast 2022E EBITDA of $244MM (prior: $258MM).
Strong acquisitive agenda of 2021 to continue in 2022. dentalcorp completed 62 acquisitions (67 locations) representing ~$43MM of acquired PF adj. EBITDA in 2021 including acquired EBITDA of ~$13MM in Q4/21 (RBCe: $10MM). Given the strong pipeline and following the bought deal completed in January (gross proceeds of $115MM), we increase our forecast of acquired EBITDA in 2022 from $40MM to $50MM for 2022. The company has noted acquisition multiples to be in the range of HSD-LDD for multi-site acquisitions (~$2-3MM in acquired EBITDA) vs. the ~7.75x multiple (GAAP basis, after rent payments) paid for the smaller acquisitions (~$0.5MM in acquired EBITDA).
Expecting updates on volume recovery, acquisitive agenda, organic growth and margins. We will look for any recent trends on the volume recovery following the peaking of the Omicron wave in Canada. We would also look for any colour on margins and pricing given inflationary pressures in the broader economy. Currently, we forecast margins to bottom-out in Q1/22 and rebound in the remainder of the year as COVID-19 related restrictions ease off and patients resume their regular dental visits. Estimates revised lower on Omicron, PT maintained at $20. We have revised our estimates to account for the COVID-19 surge (see RHS) and have rolled forward our PT, which is now based on NTM EBITDA (previously 2022 EBITDA). Our $20 target is based on 17.0x NTM EV/EBITDA on an IFRS basis (18.75x on a US GAAP basis). We believe our multiple is supported by our strong acquisition outlook, and the predictable, non-discretionary nature of dentalcorp's revenues.