Raymond James increases target to $11 On December 12, WELL announced that it had rebranded its subsidiary WELL Provider Solutions Group into a entity called WELLSTAR that it will spin off. Concurrent with the news was the announcement of a $50.4-million private placement and the closing of the acquisition of two healthcare tech companies.
“A pure-play SaaS and technology leader or ‘star’ is born. WELLSTAR is a high-performance company and disciplined capital allocator in healthcare SaaS,” said CEO Hamed Shahbazi. “Today’s announcement and the incredible support we have received from some of Canada’s most esteemed technology investors demonstrates what we have been saying for some time now, which is that WELL’s technology platform is an exciting growth business which is set up to accelerate growth and drive higher margins for WELL on a consolidated basis. This strategic move reflects WELL’s commitment to unlocking shareholder value by surfacing the significant growth and market potential of its technology segment.”
Freeman said investors are the true beneficiary of WELL recent actions
across its platform; we see this private placement as an elegant way to set the valuation floor for WELLSTAR in preparation for a public listing,” he wrote. “We also appreciate the top-line Rev. escalation WELLSTAR now benefits from as a result of its new acquisitions: a signal that SaaS M&A, after a long hiatus, is now also unlocked as a result of this structural shift.”
In a research update to clients December 16, Freeman maintained his “Outperform 2” rating on WELL but raised his price target on the stock from $10.00 to $11.00.
The analyst thinks WELL will post Adjusted EBITDA of $127-million on revenue of $990-million in fiscal 2024. He expects those numbers will improve to Adjusted EBITDA of $151-million on revenue of $1.14-billion in fiscal 2025.
“We previously expressed our reservations about WELL bringing public a tech company with a relatively small top-line and a limited float (TSX orphan-potential), while understanding the mathematical/value-unlock rationale underpinning the spin. Now, with three solid institutional investors supporting WELLSTAR (and its base valuation), two new acquisitions to build out the company’s capability set, and a freshly bolstered Rev. and EBITDA trajectory, we see WELLSTAR being much better situated for the public markets than it was a few months ago. We understand that WELLSTAR’s pipeline extends well-beyond these two recently closed deals, giving it line-of-sight on >$100 mln in r.r. Rev. in the medium-term. A $100 mln Rev. tech company sits in a materially different (better) category than one with $40-50 mln — WELLSTAR/WPS’s niche until very recently. The issue of liquidity, we expect, will be resolved as this company issues shares as part of its growth process, which we expect to include material M&A.”