WELLSTAR FINANCING AND ACQUISITIONS HELP UNLOCK SHAREHOLDER VALUE
THE TD COWEN INSIGHT
Despite the recent share price surge, we believe there is more upside ahead as management continues to focus on unlocking shareholder value and simplifying the story. We expect more WELLSTAR acquisitions ahead of a planned IPO next year, while announcements on the potential sale of Wisp and/or Circle are expected in the (very) near-term that could further boost WELL's stock.
Impact: SLIGHTLY POSITIVE
WELLSTAR implied valuation was materially above ours. The C$285mm pre-money valuation of the WELLSTAR financing was >10% above our valuation for WELL's SaaS
and Tech business, which also includes its cybersecurity business. Based on a 1x revenue multiple for the cybersecurity business, the WELLSTAR financing was done at an ~20%-25% premium to our prior valuation.
We also believe there should likely be an uplift to WELLSTAR's valuation once it goes public, which management is still expecting sometime next year. We note that key Canadian health care technology peers are currently trading at ~7-8x EV/Revenue (C2025E), well above the implied pro-forma WELLSTAR valuation of ~4.6x.
Also, we believe WELL is looking to complete additional acquisitions that could get WELLSTAR to ~C$100mm in revenue, prior to a potential IPO. Its larger size could also help it garner a higher valuation.
Strong organic growth expected. With WELLSTAR currently at ~C$40mm in annual revenue and with revenue expected to be >C$70mm next year, including ~C$15mm in LTM revenue from the two acquisitions, it implies the business is expected to grow organically by ~C $15mm (~35%-40% y/y). This outlook supports management's view that WELLSTAR is expected to maintain its better than Rule of 40 performances in F2025.
We believe the expected strong organic growth is going to be driven in particular by OceanMD (e.g., C$38.5mm B.C. PHSA contract), its billing/back-office/RCM offering, and the two acquisitions.
Increasing our estimates; PT up to C$8.50 (was C$8.00). We are increasing our F2025 estimates (revenue up ~1%; Adjusted EBITDA up ~2%) following the completion of WELLSTAR's two tuck-in deals announced last week (link).
We are also increasing our target price to C$8.50 (was C$8.00) due to our increased estimates and a higher valuation multiple on the SaaS & Tech business (4.5x vs. 3.5x prior), reflecting the higher valuation implied by the WELLSTAR financing and an increase in peer valuations.