Premier Health of America Inc (TSXV: PHA) is a Canadian Healthtech company that provides a comprehensive range of staffing and outsourced services solutions for healthcare needs to governments, corporations, and individuals. The company uses its proprietary platform to lead the healthcare services sector digital transformation to provide patients with faster, cheaper and more accessible care services.

Investment Rationale

• Solid Performance in Q2FY21: During the third quarter of fiscal 2021, the group’s net revenue nudged by a gigantic 246% to CAD 17 million, gross margin remained above 25%, operating income galloped by 111% to CAD 1.28 million, and moreover, the company reported a net profit of CAD 0.82 million against a net loss of 0.78 million in the same quarter of the previous financial year.

• Robust Liquidity Profile: The company’s cash position has significantly bolstered from CAD 1.23 million to CAD 6.8 million at the end of Q2FY21. On a sequential-quarter basis, the group’s current ratio improved to 1.07x from 0.61x.

• Increased Investment in Technology Platform: Since the start of the current fiscal year, the company has continued to invest in the development of its technology platform. During the second quarter, several new modules were successfully commissioned, including, A module for managing hourly and minute schedules, available on various applications and mobile phones. This new functionality makes it possible to better detail the resource requirements and thus maximize the hours worked of the company’s healthcare professionals. This innovation enables more accurate billing while reducing the margin of error to less than 0.001%.

• Strong Financial Risk Profile: Despite a higher debt position in the company’s balance sheet, the Debt/Equity ratio has cooled off after the company has issued fresh shares during the quarter under consideration. At the end of the March quarter, the Debt/Equity Ratio of the company stood at 0.88x against 1.62x reported at the end of December 31, 2020, with a strong debt protection ratio, i.e., TTM interest coverage ratio stood at 9.8x, implies robust risk protection metrics.

• Equity Dilution Moving Well: Over the last year, Premier Health of America issued new shares and used the proceedings for organic and inorganic growth. As a result, there was a noteworthy improvement in the net income growth. The good news is that it earned a profit in the last twelve months, despite its previous loss. It is always good to see when a formerly unprofitable business come good. Therefore, one can observe that the dilution is having a fairly profound effect on Premier’s shareholder returns.

• Stable Outlook: Rise in the population in need of medical assistance has led to the rise in the demand for hospital staffing services. Hospital staff is a very crucial component of the whole healthcare facility being provided to a patient. A hospital staff, therefore, must consist of skilled and trained professionals. Hospital staff is an asset. With the advent of home care medical facilities, the hospital staff can even be hired in a house. According to a recent market research report, the hospital staffing market would exhibit a CAGR of around 5.83% for the period of 2021-2028. This means that the hospital staffing market value would climb up to USD 53.02 billion by the year 2028.

• Bullish Technical Indicators: PHA shares registered a technical breakout on the daily price chart, with stock price crossover the crucial short-term 50-day and 30-day SMAs and settled above it for the two consecutive sessions. Moreover, PHA shares are hovering in a long-term bullish zone, as it traded significantly above its crucial long-term as well as short support levels of 200-day and 50-day SMAs. The leading momentum indicator MACD is also rising with the difference between 12-day and 26-day EMA is positive, and a potential crossover can be seen soon where the MACD oscillator is going to cross the 9-day SMA signal line.

Technical Chart, Analysis by Kalkine Group

• Risk Associated to Investment: Shortage of healthcare personnel may result in higher costs of recruiting and retaining staff or loss of clients and revenue, which would adversely impact the group. Moreover, Further, the group is exposed to regulatory risk, capital and liquidity requirements, financing risks. Further, investors are exposed to liquidity risk given the penny market cap categorization of the company.

Financial Highlights: Q2FY21

• During the quarter under consideration, the company issued an aggregate of 7,130,000 common shares at a price of CAD 1.05 per share for aggregate gross proceeds of CAD 7.4 million on a bought deal basis on February 22, 2021.
• Further, the company acquired Solutions Nursing on March 17 for a total consideration of CAD 2.7 million comprised of a CAD 1.9 million cash payment at the closing of the transaction and a CAD 0.8 million deferred cash consideration payable over two years and subject to the achievement of EBITDA objectives. Solutions Nursing generated revenues of approximately CAD 4.5 million (EBITDA of CAD 0.6 million) in 2020.
• During the quarter under consideration, the corporation’s revenue surged by 245% to CAD 17 million, attributable to the full consolidation of the Code Bleu acquisition and organic growth.
• The slight decrease in the average gross margin to 25.3% on a YoY basis resulted from a higher geographical concentration of the services rendered in urban centers.
• EBITDA jumped by 165% to CAD 1.8 million on a YoY basis.
• Net income was CAD 0.8 million against loss reported in the same period of the previous financial year.
• The corporation provided 269,500 hours of services during the quarter.

Top-10 Shareholding

Top-10 shareholders together command a 62.46% stake in the company. Legault (Martin) and Fiducie Familiale Desilets Corriveau are the major shareholders in the company and holding 42.22% and 11.22%, respectively.

Valuation Methodology (Illustrative): EV to Sales based Valuation Metrics

Note: Premium (discount) is based on our assessment of the company’s growth drivers, economic moat, competitive advantage, stock’s current and historical multiple against peer group average/median and investment risks.

Stock Recommendation: The group reported robust performance in Q2FY21 with top-line growth of 246%, gross profit improved by 235%, EBITDA leapt up by 165%, and the company reported net profit as compared to losses reported a year before.

Moreover, North America dominates the healthcare staffing market due to the prevalence of a large number of geriatric populations in need of medical assistance. Availability of a good healthcare infrastructure coupled with the ever-lasting research and development proficiencies to provide the best of the healthcare facilities have also enabled the region to maintain its dominance. The company is well poised to cater to the opportunities provided by the industry.

Also, from the technical standpoint, PHA shares are moving well, with stock traded well above the crucial long-term support level of 200-day SMA and also registered a crossover on the daily price chart, where prices crossed the crucial short-term resistances of 50-day and 30-day SMAs, which is a bullish indicator. Also, 14-day RSI hovering at 52.90, with a bullish bias. Based on technical analysis, the stock has support at CAD 1.13 level.

However, given the small-cap market categorization of the company, investors will be exposed to a varied number of risks; major ones are liquidity risk and lack of information access about the company.

Therefore, based on the above rationale and valuation, we recommend a "Speculative Buy" rating on the stock at the closing price of CAD 1.35 on June 15, 2021.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level.

1-Year Technical Price Chart (as on June 15, 2021), Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

*Recommendation is valid at June 16, 2021 price as well.

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.