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Andlauer Healthcare Group Inc.
(AND-T) C$47.47
Q3/21; Growing Equity Value Not Reflected in Share Price Event
After market close on November 11, Andlauer Healthcare Group (AHG) reported Q3/21 results. EBITDA of $28.0 million was in line with our forecast of $28.3 million and consensus of $28.7 million. EPS of $0.31 was up 41% y/y, in line with our forecast of $0.31 and consensus of $0.33. We note that there was one outlier, excluding which, consensus was $0.31.
Impact: SLIGHTLY POSITIVE
We are upgrading Andlauer Healthcare to BUY from Hold and increasing our target price to $55.00 from $54.00. The increase to our target price is due to the impact of shifting forward our valuation period by one quarter. Due to recent share- price weakness, a steady increase in our target price since early-2021, and the resulting 12-month expected return, we believe that investors should acquire the shares. Management has been delivering strong and predictable growth, along with acquisitions, which, we believe, will provide investors with exposure to specialized segments of the U.S. market, and greater long-term upside. Financial leverage has remained conservative while recently deploying capital into what we view as winning acquisitions.
The acquisitions of Boyle and Skelton USA are being completed at a combined valuation of approximately 7.1x trailing EBITDA, an attractive valuation when compared with AHG's current 2022 valuation of 15.3x EBITDA, and our target valuation multiple of 16.0x. Our target EBITDA multiple represents a premium to the company's comparable group average (Exhibit 2), but is well below the only comparable that also boasts greater than 20% EBITDA margins and an ROIC above 20%. To the extent that the pandemic has been contributing to AHG's premium valuation multiples since its IPO, we believe that there could eventually be downside risk to its multiple, though we believe that prolonged recovery, its growth opportunities, and capital efficiency will limit this risk over the next 12 months.
TD Investment Conclusion
We believe that AHG deserves a premium valuation relative to a group of comparable companies due to its above-average historical and forecast growth, prudent financial leverage, and track-record of strong margins and returns on capital, along with its competitive position within an industry that offers good economic resiliency.
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