Look for organic growth to be the driver going forward for WELL Health Technologies (WELL Health Technologies Stock Quote, Charts, News, Analysts, Financials TSX:WELL). That’s the scoop from analyst Nick Agostino of Laurentian Bank Securities who delivered a report on the company and stock on Thursday.
Laurentian hosted virtual marketing meetings with WELL Health’s management on Wednesday, saying the results were positive to its estimation of the WELL, an omnichannel health tech company which counts among its segments a medical clinics, an Electronic Medical Records business, a gastroenterology business in the United States and virtual/telehealth medicine platforms in Canada and the US.
“Management expressed its intent of reaching $1 billion in annual revenues in four to five years and is looking to complement organic growth efforts (particularly within Virtual Services) with follow-on tuck-ins to reach that goal,” Agostino wrote.
Agostino estimated that WELL should need about $90 million of acquired sales over that four to five year period to reach that $1 billion target, going by his 2022 revenue estimate at about $505 million and assuming a mid-point of organic growth of 10-15 per cent. He said WELL is looking to expand its Canadian operations into Alberta, having current coverage of about 75 per cent of the national population through operations in Ontario, Quebec and BC. Alberta would broaden WELL’s coverage to about 90 per cent.
“Despite placing a focus on operations efficiency/execution and cross-selling sales gains and alluding to a slowdown in acquisitive activity going forward, WELL did suggest its still targets clinics, EMR and billing solutions as potential strategic tuck-ins to round out its offering M&A targets. Targets, however, will be smaller in nature versus past acquisitions, each with sales contributions of ~$10 million,” Agostino said.
“Most of the organic growth is expected from expanding on WELL’s a-la-carte installed base of 2,100+ practitioners operating within its own clinics and upselling the 21,000+ practitioners in its extended network,” he said.
Agostino noted that WELL’s Virtual Services segment continues to see strong revenue growth above 50 per cent with break-even profitability and the company continues to invest the proceeds into topline growth. The company is realizing over 50 per cent of its Virtual Services revenues from its US business in platforms WISP and Circle Medical, both of which have since progressed in terms of organic revenue growth to a combined tune of 100 per cent year-over-year.
“We also note that within Canada, WELL is seeing greater volume from patients despite lower revenues compared to the U.S. and acknowledges that this market could deliver upwards of $5B in revenue opportunity if fully captured. Management also mentioned that WELL’s EBITDA to FCF conversion stands at ~30 per cent after interest and taxes, or $2-3 million per month, over the last two quarters, and expects to reach the higher end of the range by 2022-end,” Agostino wrote.
“Although WELL has been highly acquisitive over the years, having completed 40 acquisitions since inception, its focus now is to prove the business model through integration and driving organic growth. WELL has delivered strong growth with respect to revenue per share (expected to reach $2.40/share by year-end, exhibiting a CAGR of ~113 per cent from Q1/20 to 2022E) and EBITDA per share, which we view as a key measure of prudent capital allocation for an acquisitive company,” he said.
WELL’s share price shot up in 2020 but then levelled off over the first half of 2021 before backtracking over the past half-year, with the stock currently down about seven per cent year-to-date.
With the update, Agostino reiterated his “Buy” rating and $10.00 target price on WELL, which is based on a 4.5x multiple of his 2023 EV/Sales estimate and, at the time of publication, represented a projected one-year return of 116 per cent.
“WELL currently trades at 2.6x NTM EV/Sales versus high-growth Medical Technology companies at 2.8x despite a better growth profile,” Agostino said. “Similarly, it trades at 13.5x NTM EBITDA which only reflects its Omni-Channel Patient Services (clinics + CRH); Virtual Services is a free optionality.”
Last week, WELL announced a strategic minority investment in Tali.ai, an AI-powered virtual assistant that enables doctors and other healthcare providers the ability to retrieve a patient’s EMR information and issue voice commands using Natural Language Processing (NLP) algorithms.
“We are excited to closely collaborate with Tali.ai to create a transformative healthcare productivity and efficiency tool. Tali’s technology allows doctors to have a voice conversation with their EMR and quickly retrieve information at the point of care,” said Hamed Shahbazi, Chairman and CEO of WELL, in an April 13 press release. “This investment is a continuation of WELL’s efforts to support doctors and be at the frontier of innovative healthcare technology.”
Commenting on the Tali.ai investment, Agostino said, “With its voice-enabled, evidence-based approach, we believe once introduced this modality will serve as a leading-edge technology in the marketplace.”
Disclosure: Jayson MacLean and Nick Waddell own shares of WELL Health Technologies and WELL is an annual sponsor of Cantech Letter.