Andlauer Healthcare Group Inc. (TSX: AND) is a Canada-based company that provides healthcare supply chain services. The Company offers a platform of customized third-party logistics (3PL) and transportation solutions for the healthcare sector.

Key highlights

• Robust operating matrix: Despite the unstable environment, the Company maintained its pace and delivered strong results in revenue, EBITDA, and EBITDA margin. The Company is working hard to maintain its winning streak and has seen increasing scale on a sequential basis, which is encouraging.

• Started FY 2022 in a grand fashion: The company started FY 2022 on a strong note, with Q1 2022 revenues jumping by 54.9% to CAD 148.3 million, up from CAD 95.7 million in Q1 2021. Revenue in the Specialized Transportation category increased by 75%. Furthermore, EBITDA surged by 54.7% to CAD 39.3 million, with a 26.5% EBITDA margin. These impressive numbers reflect the significant impact of acquisitions in 2021, as well as sustained organic growth.

• Robust increase in cash flow from operating activities: In Q1 2022, cash flow from operations reached CAD 29.3 million, up from CAD 16.8 million in Q1 2021. The rise in operating cash flows is mostly attributable to effective company expansion, including profitable acquisition growth, as seen by the 54.7% increase in Q1 2022 EBITDA and regular adjustments in trade accounts receivable and payable.

• Attractive Industry Fundamentals: The business is well-positioned to take advantage of a number of fast-moving healthcare industry trends. Furthermore, the North American healthcare logistics and transportation sector outperforms GDP growth, which is a significant benefit. Other factors driving industry growth include an aging population and longer life expectancy, an increase in the number of healthcare and related products with unique logistics requirements, increased industry regulation, and increased demand for distributed and ancillary healthcare logistics services.

     

• Industry beating margins: In Q1 2022, the management's persistence along prudent steps and elevated sales helped the company in leaping the industry median margins on many fronts, which is a key positive. The chart below gives a glimpse of this.

• Strategic expansion in the U.S. market: Following the acquisitions of Skelton USA and Boyle Transportation, the firm now has four locations in the United States. Last year, the firm purchased 100% of Skelton Canada Inc. and 49% of Skelton USA Inc., enhancing its platform and allowing it to enter the US market strategically. These purchases strengthen company’s platform by adding more specialized temperature-controlled capabilities in the United States and broadening its strategic entry into the American market.
  

• Acquired Logistics Support Unit Inc.: The company recently acquired Logistics Support Unit Inc.  at the cost of approximately CAD 30 million, which provides specialty pharmacy, warehousing, distribution, and order management services to national and international companies as well as government clients in the pharmaceutical, medical, and biotechnology sectors throughout Canada. This deal, according to management, will further complement the company's platform expansion strategy.

Risks associated with investment

The company may see an increase in absenteeism from operational workers, such as warehouse associates, drivers, and owner operators, as a result of the pandemic, which might have a detrimental impact on operations. Furthermore, the entry of a new competitor into the business causes stiff rivalry and shifts in customer preferences may result in a loss of market share, affecting the company's revenue and cash flow.

Financial Overview of Q1 2022 (In thousands of CAD)

• Strong revenues: The company’s revenue in Q1 2022 increased by 54.9% to CAD 148.3 million, compared with CAD 95.7 million in the previous corresponding period. An increase is attributable to the acquisitions, accounted for CAD 40.5 million of the CAD 52.6 million increase, while the remaining increase is attributable to organic growth.

• Higher operating expenses: The operating expenses in Q1 2022 stood at CAD 124.1 million compared to CAD 79.1 million in pcp. The rise was attributable to increases in SG&A expenses, cost of transportation and services, direct operating expenses, and depreciation and amortization expenses. However, total operating expenses as % to revenue decreased by 100 basis points, compared to pcp.

• Healthy operating income: In the reported period, the company clocked operating income of CAD 24.1 million, which increased by 45.0% against CAD 16.6 million in the previous corresponding period.

• Elevated net income: The net income in Q1 2022, increased to CAD 16.4 million, from CAD 11.6 million in the previous corresponding period, partially offset by higher income tax expense. 
  

Top-5 Shareholders 

The top 5 shareholders are illustrated in the pie chart below, which forms around 35.09% of the total shareholding. Mawer Investment Management Ltd. and BMO Asset Management Inc. hold the company's maximum interests at 9.95% and 7.80%, respectively. The company's institutional ownership stood at 59.10%. Higher institutional holding boosts the confidence in the mind of retail investors. 

Valuation Methodology (Illustrative): EV to Sales

Stock recommendation 

The company's impressive first-quarter financial performance, which included year-over-year gains in sales and EBITDA of more than 50%, highlights the considerable effect of the acquisitions in 2021 as well as continuous organic growth. In the first quarter, the firm continues to develop its acquisition plans with the purchase of LSU, which expands the healthcare logistics product portfolio and market presence in Quebec. These high statistics contributed to the company's strong cash flows of CAD 29.3 million in Q1 2022, compared to CAD 16.8 million in pcp, which is a huge improvement.

The company is expanding its presence in the United States, which is a significant plus. On the cost front, the firm is focusing on operational excellence and has reduced its operating expenditures as a percentage of sales by 130 basis points, which is a significant improvement. Furthermore, the outsourced healthcare logistics and transportation business in North America is expanding at a solid rate, boosting the company's confidence. Therefore, based on the above rationales and valuation, we recommend a "Buy" rating on the stock at the at the last closing price of CAD 39.63 as on June 15, 2022. 

One-Year Technical Price Chart (as on June 15, 2022). Source: REFINITIV, Analysis by Kalkine Group 

*Recommendation is valid on May 16, 2022, price as well. 

Technical Analysis Summary

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