Quipt Home Medical Corp (TSXV: QIPT) is a US based healthcare company which provides in-home monitoring equipment, supplies, and services to patients. The group offers services like Daily & Ambulatory Aides, Power Mobility, INR Self-Testing, Respiratory Equipment Rental, Home ventilation, Oxygen Therapy, and Sleep Apnea & PAP Treatment.

Key Updates:

• Improved working capital management: In Q1FY22, the company reported its quick ratio and current ratio of 1.38x and 1.70x, respectively, as compared to the industry median of 1.21x and 1.55x, respectively. This indicates that the company is well managing its current liabilities through is current assets.

• Strong recurring revenue indicates business stability: The company ~77% of the income comes from recurring revenue. This is supported by favorable product mix along with higher demand from the US Home Medical Equipment segment. This is a key positive and indicates performance stability.

• Constant growth in financial metrics: Over the years, the company has offered exceptional service to its clients through proper adaptation of technologies, which has resulted to higher client base. Notably, due to the growing trend of Chronic conditions and other related diseases among US populations, the industry is likely to grow to a USD 84 billion market by 2028. Notably, the company has increased its topline and profitability since 2018, which denotes strong demand dynamics.

Source: Company Presentation

• Higher cash flows: For the first quarter of FY22, the company reported a higher operating cash flow of USD 5.3 million, as compared to USD 3.0 million in pcp. This is a key positive and is expected to boost the overall liquidity position.
  

Risk Associated with the Investment:

The company is witnessing margin pressure due to the rise in input costs, and continuation of the above trend is likely to dampen the company’s upcoming performance. Moreover, the company might see intense competition from any arrival of new player with innovative technology at a lower price quotation and remains major concern for the company.

Q1FY22 Financial Highlights:

Q1FY22 Income Statement Highlights (Source: Company Report)

• QIPT announced its first-quarter result, wherein the company posted total revenue was recorded at USD 29.5 million, surged from USD 22.7 million in pcp.
• Cost of inventory sold, operating expenses and stock- based compensation stood higher in Q1FY22, which resulted to an operating loss of USD 1.1 million, as compared to an operating profit of USD 1.4 million in pcp.
• The company reported a net loss of USD 2.1 million, as compared to a net profit of USD 1.3 million in pcp. This was primarily due to an operating loss coupled with higher interest expenses on loans and an increase in interest on leases.

   Valuation Methodology (Illustrative): EV to Sales Based

Analysis By Kaline Group

Stock Recommendation:

For FY22, the company expects its top-line in between USD 180 million to USD 190  million, while its Adjusted EBITDA is expected in between USD 38 million to 43 million. 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 Medical Facilities Corp, Knight Therapeutics Inc and CareRx Corp. Considering the aforesaid facts, we recommend a ‘Speculative Buy’ rating on the stock on the last closing price of CAD 5.60 on March 30, 2022.

One-Year Technical Price Chart (as on March 30, 2022). Analysis by Kalkine Group

Technical Analysis Summary:

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