RE:Echelon - Top 5 pick - cantechletter.com I think WELL is one of a handful of potential Canadian suitors for Think, but I actually suspect many larger US company's would be interested as well. It's really puzzling to see the share price at these levels but THNK isn't alone in this regards, the entire Health Tech sector in Canada has been decimated, though some companies have seen share price contraction for well deserved reasons. Still one of these days THNK could explode much higher and do so without warning. Time will tell.
Echelon's comment on THINK relased late last week:
We are adding Think Research to our Top Picks Portfolio (TPP) for Q323 reflecting the strength of the Company’s financial results, the Q123 marquee contract win along with the prospects of further long-term SaaS wins. The Company’s success stands at odds with its steep valuation discount to peers. We see Think as fundamentally attractive and catalyst rich.
Near-Term Thesis: Think’s shares are flat YTD after sliding -77% in 2022, despite achieving significant cost synergies across 2022 (~$11.3M in annualized savings), turning meaningfully and sustainably EBITDA-positive on increased scale with the Company’s record Q422 results, and winning significant SaaS contracts in 2023 that have increased its annual recurring revenues (ARR) by $10M+. This ARR boost largely stems from its landmark five-year $40M Digital Front Door (DFD) deal in March with a yet-to-be named regional health system (see our associated note here). Think’s shares gathered early momentum in 2023, peaking with its DFD announcement and hitting a high of $0.65 (up ~91% YTD at the time across just two-plus months) before inexplicably falling back down to levels they entered the year at, nearly 50% below their March high. This fall took place while Think delivered another record top line for Q123 at $21.6M in quarterly revenues alongside $1.1M in EBITDA, with revenues/EBITDA expected to march higher throughout the rest of 2023. Notably, our forecasts don’t contemplate any additional pipeline wins, yet Think spent much of its Q123 conference call communicating that its sales pipeline sits at all-time highs. We see the potential for near-term deals to reflect total contract values (TCV) well into the double digits ($M) and pipeline opportunities spanning both public/government health systems and private enterprises.
Valuation Disconnect Supports Buy Thesis, Takeout Considerations: With the Company’s share underperformance on the year versus larger digital health peers such as WELL Health (WELL-TSX, $4.75, Speculative Buy, PT $8.00) and Dialogue Health (CARE-TSX, NR), which have enjoyed 67% and 37% returns YTD, respectively, Think’s steep valuation discount has only widened. Think is trading at 0.7x/8.6x EV to 2023 revenues/EBITDA compared to WELL Health at 2.2x/13.3x and Dialogue Health at 1.5x/NM (negative EBITDA) (Exhibit 1). With Think’s EBITDA margin accelerating in 2024, the gap becomes even more unreasonable as Think trades at 0.6x/6.0x our 2024 revenue/EBITDA forecasts compared to WELL at 2.0x/11.4x and Dialogue at 1.2x/29.2x. While we don’t envision the Company entertaining a sale while down at these share price levels, we believe Think’s growing SaaS franchise and unique capabilities within its flagship DFD and Learning Management System (LMS) offerings could provide tremendous strategic value to a larger company, such as WELL Health, in due time.