In a Tuesday report to clients, Haywood Capital Markets analyst Colin Healey gave the thumbs up to a new pickup by Canadian health tech company WELL Health Technologies (WELL Health Technologies Stock Quote, Charts, News, Analysts, Financials TSX:WELL). Healey said with its multifaceted business continuing to expand both organically and through acquisition, WELL’s stock should be very attractive for investors at current levels.
WELL Health, an omni-channel healthcare company which has among its assets in Canada and the United States an Electronic Medical Records (EMR) business, a gastroenterology business, medical clinics and virtual healthcare platforms, announced on Tuesday an agreement to acquire Cloud Practice, a medical software application company owned by CloudMD. Cloud Practice includes Juno EMR, a cloud-based EMR solution based on OSCAR, the Open Source Clinical Application Resource, and ClinicAid, a medical billing software. WELL is also acquiring from CloudMD three primary care clinics in the province of British Columbia.
As the largest provider of OSCAR EMR products and services in Canada, WELL would be adding through the Juno EMR acquisition the largest-remaining OSCAR platform on the market, while through Juno and ClinicAid, WELL would be entering the provinces of Alberta and Saskatchewan for the first time as an EMR and billing software provider.
“This transaction demonstrates our dedication to expanding and strengthening WELL’s Canadian healthcare offering through disciplined capital allocation,” said WELL Founder and CEO Hamed Shahbazi in a press release. “This acquisition will also enable our EMR and billing divisions to enter new markets in the Canadian Prairies where we look forward to supporting healthcare practitioners’ access to new digital health innovations.”
The three medical clinics come with a combined staff of 20 physicians and will be wholly owned by WELL once the transaction closes (expected during the current quarter). WELL said it will pay $5.75 million in total consideration for the assets, with $5.1 million to be paid in cash and the balance subject to customary post-closing adjustments and holdbacks. WELL said the assets should contribute more than $9 million to its revenue and will be operating profitably.
Looking at the deal, Healey said WELL would be acquiring the package at 0.64x revenue and that the two new software applications complement existing offerings from WELL, while WELL will be bringing the three physical clinics into its stable and fully integrated into WELL’s primary care network.
“The acquisition represents <2 per cent of our forecast 2023 revenue for WELL but is consistent with WELL’s consolidation strategy from both its physical clinic and software business groups,” Healey wrote.
With the update, Healey reiterated a “Buy” rating on WELL and $7.00 target price, which at the time of publication represented a projected one-year return of 146 per cent.
Looking ahead, Healey is expecting WELL to generate third quarter 2022 revenue of $144.8 million and EBITDA of $26.7 million. For the year, he is calling for $562.2 million in revenue (which would be up from $302.3 million in 2021) and $105.7 million in EBITDA. For 2023, he is estimating $621.4 million in revenue and $123.1 million in EBITDA.
On valuation, Healey estimated WELL to be currently trading at an 8.3x EV/EBITDA multiple of his 2023 numbers compared to its services peers at 8.1x and healthcare technology peers at 19.9x.
“WELL continues to evolve, rapidly growing its revenue, market footprint and underlying financial metrics both organically and through complementary acquisitions,” he said.
“Shares have been under pressure alongside the sector and broader markets. We see WELL as extremely attractive at these levels with the underlying businesses performing very strongly. WELL is positioned to meet its expectations of exceeding $550 million in revenue for 2022 as well as ~$100 million in Adjusted EBITDA. We continue to like WELL, underpinned by strong management and evolving technical offerings,” Healey wrote.
Disclosure: Nick Waddell and Jayson MacLean own shares of WELL Health Technologies and WELL is an annual sponsor of Cantech Letter.