(AND-T) C$48.11
Q4/21; Value Through Organic Growth & Thoughtful Acquisitions Event
Andlauer Healthcare Group (AHG) reported Q4/21. EBITDA, excluding a one-time acquisition-related gain, was $35.8 million, above TD/consensus forecast of $31.3/ $31.6 million. We estimate FD EPS, excluding the gain, was $0.36, above TD/ consensus forecast of $0.33/$0.34.
Impact: SLIGHTLY POSITIVE
We are maintaining our HOLD recommendation and increasing our target to $56.00 from $55.00. Our target change is due to the net impact of a shift forward of our valuation period by one quarter, higher EBITDA forecasts, and a slight reduction to our target multiple to 15.0x EBITDA from 16.0x previously. We are increasing our forecasts due to the carryforward of a portion of the stronger-than-forecast Q4/21 results, including stronger organic revenue, Specialized Transportation margins and greater-than expected revenue from the Skelton USA and Boyle Transportation acquisitions. In our view, AHG's strategic and operational execution is very strong. However, we believe that the market environment over the next 12-months, and our expectation that investors are relatively accustomed to AHG's consistently strong and stable results will make it challenging for the company's EBITDA valuation multiple to expand more than the 0.5-1.0x implied by our target multiple.
Our target multiple continues to represent a premium to the company's comparable group average (Exhibit 2), but is well below the only comparable that has also been generating greater than 20% EBITDA margins and an ROIC above 20%.
We believe that inflationary headwinds in 2022 will gradually be recovered through pricing adjustments, and that COVID-19-related revenue in 2021 will be offset by a recovery in demand for delayed transportation services for products related to health and beauty, cough and cold and elective surgeries. Management has been delivering strong growth, and thoughtful and accretive acquisitions. We believe that this will provide investors with exposure to specialized segments of the U.S. market, and the potential for greater shareholder value than implied by our current forecasts.
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.