WELL Health Technologies Corp T.WELL

TD 2

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WELL Health Technologies Corp.

(WELL-T) C$4.42

Q4/F22: Anticipating Further Improvement Despite Cost Headwinds

Event

We are updating our target price and estimates following WELL's Q4/F22 results. See for our initial take.

Impact: NEUTRAL

Capital allocation focused on M&A. WELL is looking to significantly expand its clinic footprint in Canada (90 currently), as it looks to eventually get to 300-500 clinics, in line with the physical presence of dental-service leaders dentalcorp and 123Dentist. WELL is primarily focused on primary-care clinics, but is also interested in other clinics, including allied care, diagnostics, and specialists. WELL has a large M&A pipeline (including approximately half-a-dozen high-quality signed LoIs) and a goal to add 20-30 clinics in F2023, with plans to further accelerate the pace of M&A as it continues to ramp up its M&A/integration team. Given FCF to shareholders is expected to see significant improvements in the coming years and the ongoing attractive clinic valuations, we believe there is plenty of runways for WELL to grow by further consolidating the very fragmented Canadian clinic market and thus solidifying its leadership position.

Strong organic growth expected to continue. We believe the F2023 revenue guidance implies organic growth in at least the mid-teens, primarily driven by Circle Medical/Wisp. WELL is aggressively reinvesting in Circle Medical/Wisp to support their continued strong, profitable growth. Although most of the growth at Circle in expected to be from its online/virtual business, WELL is also expanding its physical footprint, with Circle recently adding three new locations in Illinois, Florida, and New York, with further expansion in Washington, DC and 10 states planned in the coming weeks. Many of Circle's clinics will be multi-disciplinary (i.e., include Wisp and/or CRH banding services), similar to WELL's strategy in Canada, albeit on a much smaller scale. Meanwhile, increased federal healthcare funding and plans for private healthcare operators to play a bigger role in the Canadian healthcare system should also help bolster organic growth.

TD Investment Conclusion

We are maintaining our C$7.50 target price, based on our sum-of-the-parts valuation and implies ~2.6x our F2024 revenue forecast. We believe WELL's continued strong execution and resilient business model remain underappreciated by the market, especially in the current challenging macro environment. WELL remains our top pick.