Viemed Healthcare Inc.

Viemed Healthcare Inc. (TSX: VMD) is a provider of equipment and home therapy to patients with respiratory disease, oxygen problems, sleep apnea and PAP treatment. The company also provides services to neuromuscular patients.

Key Updates:

• Elevated Financials Metrics underpinned by attractive industry growth: Over the years, the group reported an increase in revenue and profitability supported by an increase in aged people who qualifies for Medicare. The business model of the group depends on monthly rental fees, which are reimbursed by insurance and covered by Medicare. Moreover, the DME and post-acute respiratory healthcare services within the US are likely to remain attractive, as patients are choosing for effective in-home treatment with clinical practitioners, which is a key positive.

Source: Company Presentation

Source: Company Presentation

• Implementation of Technology for better results: The group is focusing on investing in research and development to enhance the company’s technology, which would subsequently boost the company’s therapy and counselling service. Moreover, the company is increasing clinician’s efficiency through improved remote workflow and proactive care patient engagement solutions in order to increase patient and caregiver engagement indicates higher customer-satisfaction.

FY20 Financial Highlights:

• VMD announced its full-year result, wherein the company posted revenue of USD 131.309 million as compared to USD 80.256 million in FY19.
• The group reported its gross profit at USD 80.111 million v/s USD 56.006 million in FY19. The increase was driven by higher revenue, partially offset by an increase in the cost of revenue (USD 51.198 million v/s USD 24.250 million in FY19).
• Income from operations surged to USD 26.781 million from USD 8.857 million in pcp. The period was marked by an increase in selling, general and administrative costs (USD 52.829 million v/s USD USD 41.381 million in FY19) coupled with slightly higher research and development expense and higher stock-based compensation.
• Net income stood at USD 31.530 million, as compared to USD 8.525 million in FY19.
• The group reported cash and cash equivalents of USD 30.981 million, while total assets were reported at USD 112.560 million.

FY19 Income Statement Highlights (Source: Company Report)

Risks: Reimbursement for the services provided by VMD comes from governmental healthcare programs, such as Medicare and Medicaid, and private health insurance companies. Hence, the reimbursement rates offered are controlled by the regulatory bodies, and any reduction in the reimbursement rates might dampen the company’s income and margins.

Valuation Methodology (Illustrative): EV to Sales

Note: All forecasted figures and peers have been taken from Thomson Reuters 

Stock Recommendation:

The group reported improved margins in FY20 and posted EBITDA margin and net margin at 25.9% and 24%, respectively, higher than 19.3% and 10.6% in FY19, respectively. The scope from the sector, in which the company operates remains bright in the coming years, as ~10,000 baby boomers are turning 65 every day, representing ~26% of the US population. Moreover, increasing support by Government for effective homecare solutions to reduce patient hospital re-admissions would provide further support the company’s operations. As per the study ~25 million people in the U.S. have Chronic Obstructive Pulmonary Disease (COPD), and ~50% of COPD lead to chronic respiratory failure, which leads to a potential candidate for therapy. We have valued the stock using the EV to Sales-based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered peers like Protech Home Medical Corp., Vapotherm Inc etc. Considering the aforesaid facts, we recommend a ‘Speculative Buy’ rating on the stock of VMD at the current market price of CAD 12.90 on April 5, 2021.

One-Year Price Chart (as on April 5, 2021). Source: Refinitiv (Thomson Reuters)

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