TD Analysis -UPDATEDEvent We are updating our estimates following WELL's Q2/F23 results. See here for our initial take. Impact: NEUTRAL Strong profitable growth set to resume at Circle and Wisp. Both businesses experienced softer results in Q2/F23, with Circle's revenue down 9% q/q (but up 34% y/y), while Wisp's revenue was only up 3% q/q (but up 46% y/y). However, management telegraphed these near-term challenges last quarter, indicating that Circle was shifting its short-term focus towards expanding its clinic footprint (now at 27 clinics across 21 U.S. states vs. two clinics at the end of 2022) to comply with regulations following the upcoming end of the U.S. Public Health Emergency and related end of COVID-era telemedicine flexibilities for controlled medications. Wisp also spent Q2/F23 retooling some of its key products and distribution partnerships. With these temporary headwinds mostly in the past, WELL expects a quick return to strong, profitable growth for both businesses. Based on August bookings data, WELL believes Circle is profitably generating >$100mm in ARR this month. Circle is rapidly onboarding physicians, with ~50-60 added quarter-to-date and >300 physicians now on its roster. Meanwhile, Wisp delivered record monthly revenue in July (US$5mm), with plans to launch ~10 new products in the coming months. $1B annual revenue run-rate within reach next year. Our updated forecasts, which assume no future acquisitions, have WELL generating almost $1B in annual revenue on a run-rate basis exiting F2024, aided by recent acquisitions, most notably CarePlus and the 11 MCI clinics, and expected continued strong organic growth, with Circle/Wisp being key drivers. The M&A pipeline remains solid with plenty of opportunities to continue consolidating the Canadian clinic market at very attractive valuations, resulting in modest capital required to fund these deals in our view (i.e., we believe these acquisitions can be funded with FCF), with some larger (CarePlustype) deals mixed in. TD Investment Conclusion We are maintaining our C$8.50 target price, based on our sum-of-the-parts valuation. Our valuation implies ~16.8x our F2024 Adjusted EBITDA forecast, below the peer group at 18.4x. At ~10x EV/EBITDA, we believe WELL looks very attractively valued, given its strong balance of organic growth, margins, and M&A upside.
Recommendation: BUY Risk: HIGH 12-Month Target Price: C$8.50 12-Month Dividend (Est.): C$0.00 12-Month Total Return: 84.8% Market Data (C$) Current Price C$4.60 52-Week Range $2.56 - $5.94 Mkt Cap (f.d.) ($mm) $1,100.0 Float Cap ($mm) $972.2 Current Dividend $0.00 Dividend Yield 0.0% Avg. Daily Trading Vol. 1,918,393 Financial Data (C$) Fiscal Y-E December Shares O/S (f.d)(mm) 239.1 Float Shares (mm) 211.3 Net Debt ($mm) $268.1 Net Debt/Shr (f.d.) $1.12 Estimates (C$) Year 2021A 2022A 2023E 2024E Sales ($mm) 302.3 569.1 755.6 926.6 Sales ($mm) (old) – – 743.1 895.9 Adj. EBITDA ($mm) 60.4 104.6 115.8 141.5 Adj. EBITDA ($mm) (old) – – 115.7 144.4 EPS (f.d) (Adj.) 0.09 0.24 0.27 0.36 EPS (f.d) (Adj.) (old) – – 0.26 0.36 Sales ($mm) Quarterly Estimates (C$) Year 2021A 2022A 2023E 2024E Q1 25.6 126.5 169.4 220.0 Q2 61.8 140.3 170.9 229.5 Q3 99.3 145.8 198.7 233.7 Q4 115.7 156.5 216.6 243.3 Valuations Year 2021A 2022A 2023E 2024E EV/Sales 4.8x 2.5x 1.9x 1.6x EV/Adj. EBITDA 23.9x 13.8x 12.5x 10.2x P/E (f.d.) (Adj.) 53.7x 18.9x 17.2x 12.9x