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

• Attractive Industry Fundamentals: The company is well-positioned at the forefront of multiple fast-moving healthcare sector developments, and the expansion of the North American outsourced healthcare logistics and transportation market is outperforming GDP growth, which is a major plus. 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.

Source: Company Presentation

• Robust operating matrix: Despite the turmoiled environment, the Company maintained its pace and witnessed spirited performance across its revenue and EBITDA & EBITDA margin. The Company is continuously working closely to carry this winning momentum and has witnessed higher scale on the sequential basis, which is appreciable.

    Source: Company Filing, Analysis by Kalkine Group 

• Robust increase in cash flow from operating activities: The cash flow from operating activities of the company in 2021 was CAD 84.1 million, up from CAD 51.0 million in the previous equivalent period. The rise in operational cash flows is primarily due to profitable business expansion, including profitable acquisition growth, as seen by the 62.9% increase in Fiscal 2021 EBITDA.

Source: Company Filing, Analysis by Kalkine Group 

• Managing Cost efficiently: The group incurs numerous operational expenditures to deliver its services. The organization focuses on operational efficiency, product line synergies, and cost management to reduce the risk of cost escalation. In FY 2021, the company's operating costs as a percentage of revenue decreased by 130 basis points to 73.5%, down from 74.8% in pcp.
  

• Entry 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. On November 1, 2021, it purchased 100% of Boyle Transportation and 51% of Skelton USA, bringing its total ownership of Skelton USA to 100%. These purchases strengthen its platform by adding more specialized temperature-controlled capabilities in the United States and broadening its strategic entry into the American market. Combined revenue for Boyle Transportation and Skelton USA was about CAD 19.0 million in Q4 2021.
  

• Acquired Logistics Support Unit Inc.: At a cost of approximately CAD 30 million, the company recently acquired Logistics Support Unit Inc., a third-party logistics provider that 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 FY 2021 (in millions of CAD)

Source: Company Filing 

• Strong revenues: The company’s revenue for Fiscal 2021 increased by 40.0% to CAD 440.1 million, compared with CAD 314.3 million in Fiscal 2020. An increase is attributable to the acquisitions, in aggregate, accounted for CAD 77.1 million of the CAD 125.8 million increase from Fiscal 2020, with the remaining increase attributable to organic growth.

• Higher operating expenses: The operating expenses in FY 2021 stood at CAD 366.4 million compared to CAD 263.4 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, reflecting the Company's acquisitions in Fiscal 2020 and Fiscal 2021. However, expenses as % to revenue decreased by 50 bsp.

• Healthy operating income: In the reported period the company clocked operating income of CAD 73.7 million, which increased by 44.7% against CAD 50.9 million in the previous corresponding period.

• Elevated net income: The net income in FY 2021, increased to CAD 89.9 million, from CAD 37.7 million in the previous corresponding period. This includes the gain on the step acquisition of CAD 37.9 million, partially offset by higher income tax expense. 
  

Top-10 Shareholders 

The top 10 shareholders have been highlighted in the table, which forms around 44.87% of the total shareholding. Mawer Investment Management Ltd. and BMO Asset Management Inc. hold the company's maximum interests at 10.51% and 7.87%, respectively. The company's institutional ownership stood at 49.17% and ownership of the strategic entities stood at 2.13%. Higher institutional holding boosts the confidence in the mind of retail investors.

Valuation Methodology (Illustrative): EV to Sales

Analysis by Kalkine Group

Stock recommendation 

In both the fourth quarter and the full year of 2021, the business saw substantial year-over-year revenue and profit growth, owing to the beneficial contributions of acquisitions and ongoing organic development. The acquisitions it made in 2021 considerably improved the client service offering and provided a solid foundation for future expansion in the United States. In addition, the company's recent acquisition of LSU adds to the platform's growth.

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 closing price of CAD 45.12 as on March 2, 2022. 

One-Year Technical Price Chart (as on March 2, 2022). Source: REFINITIV, Analysis by Kalkine Group

Technical Analysis Summary

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