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:

• Growing healthcare service requirements for COPD patients: The company caters to patients who are suffering from Chronic Obstructive Pulmonary Disease (COPD) across the U.S. Recently, the healthcare industry is witnessing an increase in the number of COPD patients, while the industry has already spent USD 50 billion of annual healthcare costs on COPD. We believe the trend is likely to continue in the coming days and would subsequently support the company’s upcoming performances in the coming days.

• Robust profitability margins: The company is commanding higher margins against an industry, which indicates improved operational efficiencies. Notably, in Q3FY21, the company reported gross margin and EBITDA margin of 62.8% and 20.3%, respectively, higher than the industry median of 35.9% and 14.7% respectively. The group also recorded higher net margin at 6.1% versus the industry median of 4.9%.

• Ample liquidity: In Q3FY21, the company reported a higher quick ratio and current ratio of 2.22x and 2.34x, respectively, as compared to the industry median of 1.17x and 1.52x, respectively. This indicates that the company has sufficient current assets to meet its short-term liabilities.

Risks: Reimbursement for the services provided by VMD comes from governmental healthcare programs, such as Medicare and Medicaid, private health insurance companies, etc. 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.

Q3FY21 Financial Highlights:

• In Q3FY21, the company reported its revenue of USD 29.285 million, versus USD 33.447 million in pcp. The decline was primarily due to significantly lower income from the COVID-19 response sales and services segment (USD 1.452 million v/s USD 8.553 million in pcp).
  

• The company reported a marginally lower gross profit of USD 18.381 million as compared to USD 19.453 million in pcp. This was due to lower revenue, partially offset by a decline in cost of revenue.
  

• The quarter was marked by significantly higher research & development costs and an increase in stock-based compensation cost, while a decline in the selling, general & administrative partially supported the profitability. The company reported its income from operations at USD 2.919 million, lower than USD 4.040 million in pcp.
• The group reported its net income of USD 1.789 million, as compared to USD 2.804 million in pcp.

Q3FY21 Income Statement Highlights (Source: Company Reports) 

 Valuation Methodology (Illustrative): EV to Sales based

Stock Recommendation:

The group is investing in the research and development segment to enhance the company’s technology and remote care segment. This is expected to boost the company’s therapy and counselling service, which is a key positive as it would lead to better patient engagement and improved customer satisfaction.

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 Quipt Home Medical Corp, Premier Health of America Inc etc. Considering the aforesaid facts, we recommend a ‘Speculative Buy’ rating on the stock of VMD at the current market price of CAD 5.85 at 10:00 am Toronto time on January 20, 2022.

One-Year Technical Price Chart (as on January 20, 2022). Analysis by Kalkine Group 

Technical Analysis Summary:

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

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