Quipt Home Medical Corp

Quipt Home Medical Corp (TSXV: QIPT) provides in-home monitoring and disease management services including end-to-end respiratory solutions for patients in the United States healthcare market. The Company’s products and services includes sleep apnea and pap treatment, home ventilation, equipment solutions, daily and ambulatory aides, respiratory equipment rentals, and oxygen therapies. Its sleep apnea and pap treatment consist of sleep testing system to allow their patients to test at home.

Investment Rationale

• Strong and growing recurring revenue model: The company has recurring revenue and diverse revenue streams that allows for stable earnings and sustainable company growth. Moreover, its recent acquisitions have created an optimal product mix and strengthened the company’s revenue platform.

Source: Company presentation 

• A unique technology platform: Significant technological investments in the company’s platform has allowed the company to offer exceptional services to its patients and it will continue to serve as a key differentiating factor between Quipt and its peers as it continues to pursue organic and inorganic expansion.
  

• Strategic acquisition: The company as of November 22, 2021, announces execution of LOI to an arm’s length private respiratory care company servicing seven states throughout the U.S. The target specializes in providing high-quality, comprehensive respiratory care to patients in the long-term care setting including ventilator management, equipment, oxygen and providing supplies. The acquisition would be expected to increase Quipt’s annual revenues by approximately USD14 million and USD1 million in net income before synergies. Leveraging existing infrastructure, Quipt would expect to achieve additional revenue generated from organic growth, cross selling, and corporate synergies.

• Favourable industry dynamics: The current size of the DME sector is merely a fraction of what it would become in the next two decades, with an estimated 10,000 individuals turning 65 every day over the next 15 years. The sector's current performance supports estimates of a 6.0% CAGR from 2021 to 2028, with the entire industry size estimated to exceed USD 84 billion in 2028. The company believes it is well positioned to capitalize on these outstanding market dynamics, given its track record of making smart, accretive acquisitions.

Source: Company presentation

• Increasing customer base and demand for respiratory equipment: From 37,128 unique patients treated in Q3 2020 to 64,578 unique patients served in Q3 2021, the Company's client base rose by 74% year over year. Through the continued use of technology and centralized intake processes, respiratory resupply set-ups deliveries also increased by 181% to 40,580 in the reported period, compared to 14,436 for the same period ended June 30, 2020
  

• Gaining technical strength: On daily price, QIPT shares are taking support near rising trend line and on the last trading session its shares have reported bullish engulfing pattern. Moreover, RSI range is also spotted in the QIPT counter, where 14-day RSI has moved above 40 support, implies that bearishness is getting exhausted.

Technical price chart (as on December 21, 2021). Source: REFINITIV, Analysis by Kalkine Group

Risk associated to investment:

The Company’s activities are exposed to various risks beyond the Company’s control that could affect its operations and business. Adverse changes in the conditions in the specific markets for the Company’s products and services, conditions in the domestic or global economy generally, competition, currency risk, and interest rate risk are there 

Financial Highlights: Q3FY21

Source: Company filing

• Strong topline performance: During the quarter under consideration, the company reported a revenue growth of ~41% to USD 26.2 million from USD 18.6 million reported in Q3FY20.This was largely driven by 26% growth in rentals of medical equipment revenue and 63% surge in sales of medical equipment and supplies.
• Continued strong recurring revenue: In the Q3FY21 the company’s recurring revenue continues to be strong and exceeds 75% of total revenue.
• Adjusted EBITDA expansion: During the quarter the company reported 21% surge in adjusted EBITDA to USD 5.3 million compared to USD 4.4 million reported in the same period of the previous financial year.
• Reported operating losses on the back of increased operating expenses: Primarily due to change in fair value of derivative warrant and debentures the company managed to post net income of USD 6.3 million in Q3 2021 compared to a loss of USD 2.5 million in pcp.
• Improved Cash position: The Company reported USD 30.6 million of cash on hand as at June 30, 2021 compared to USD27.2 million as at March 31, 2021

Top-10 Shareholders

Top-10 shareholders together holds 21.05% stake in the company, with Claret Asset Management Corporation and Crawford (Gregory J) are the major shareholders with an outstanding position of 8.21% and 3.62% respectively. The institutional ownership in the company stood at 20.66%.

Source: REFINITIV, Analysis by Kalkine Group

Valuation methodology (Illustrative): EV/EBITDA-based valuation

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 company continued to produce exceptional results, highlighted by the robust organic growth, driven by the strong execution displayed across the organization. The record third quarter financial and operating results are a direct result of the group’s ability to leverage ongoing technology implementation and workflow processes to improve the operations. Also, a bullish regulatory landscape provides an extraordinary opportunity to the company to scale aggressively. Organic growth has been a top priority for the company, and the 11% organic growth achieved year-to-date embodies the ongoing execution company-wide. The company kept itself busy with the acquisitions and with the expand from a regional homecare provider into a national provider, within the United States we strongly believe that it will be a driver of future organic growth. Further, the company’s robust financial position provides them the ability to target meaningful acquisition candidates that work significantly to move the needle for their coverage sphere in the United States and their pipeline continues to be very strong Hence, based on the above rationale and valuation done, we recommend a “Speculative Buy” rating on “QIPT” stock at the closing price of CAD 7.07 (as on December 21, 2021)

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

Technical Analysis Summary:

1-Year price chart (as on December 21, 2021). Source: REFINITIV, Analysis by Kalkine Group

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

*Recommendation is valid on December 21, 2021, price as well.

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