Dri Healthcare Trust T.DHT.UN

New research report from Stifel

[HermannHaller]

'Initiation of Coverage, BUY, $20 target.' 

Exerpt:

Rating and valuation: DRI trades at only 0.8x P/BV vs. Royalty Pharma at ~2.5x and a broad set of comps ~2x. We forecast 15% cash flow growth to DRI investors over the next two years. Also, the portfolio duration is currently in good shape, with 2025 cash receipts expected to exceed current levels, not including new capital deployment. We also see an opportunity for DRI to move up the transaction size value chain as two companies dominate royalty transactions above $250mm, and we see that barrier to entry as penetrable. DRI also has new capital to support growth targets, including +US$110mm from a 110% one-month return from sold asset Tzield, along with a US$95mm private placement in March and access to significant debt facilities. The current total cash balance is US $65mm and net debt/EBITDA is <0.4x with US$300-$350mm in capacity. As we model DRI, we see a valuation re-rating opportunity towards Royalty Pharma's multiple, and identify a potential multi-year value creation scenario building with progression to larger transaction sizes. We launch on DRI with a Buy rating and C$20.00 target price, which is based on a DCF analysis.