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

Key Highlights:

• Sequentially declining profitability margins: In Q1FY22, the company showcases declining profit margins on a sequential basis, because of rising expenses and a moderate uptick in the revenues.

Source: REFINITIV, Analysis by Kalkine Group

• Increase in write-offs: During Q1FY22, the company reported an increase in the write-offs, which are based on the historical trend, bad debts experience, local and economic trends, etc. For Q1FY22 the group recorded USD 8.48 million as total write-offs which are higher than the USD 7.99 million in Q1FY21.

Source: Company presentation

• Decline in revenues from the Medicare segment: During Q1FY22, the group reported a significant decline in revenue from Medicare segment to 49% versus 60% in Q1 FY21. The continuation of such a trend soon can hamper the company’s overall revenue, negatively impacting its overall business growth.

Source: Company presentation

• Stretched Valuation: VMD’s shares are currently trading at an NTM EV/EBITDA multiple of 6.0x compared to the industry (Healthcare) mean of 1.6x. While on NTM Price/ Equity multiple it is trading at 22.3x against an industry mean of 0.3x. This implies that the shares are overvalued against the industry.

Valuation Methodology (Illustrative): EV to sales based

Analysis by Kalkine Group

Stock Recommendation:

Although the group reported impressive revenues of USD 32.25 million in Q1FY22 against USD 28.41 million in Q1FY21, the increasing cost of revenue and surge in write-offs are impacting the consistency in the books. During Q1FY22 the company experienced 59.4% of bad debt allowance (% of Accounts receivable) which is much higher than the industry median of 1.6%. On the valuation front, the stock is measured on the EV to sales based multiple and we have considered Dialogue Health Technologies Inc.,   Greenbrook TMS Inc., etc as the peer group for the comparison.

Therefore, based on the above rationale and higher valuations, we recommend a “Sell” rating on stock of VMD, at the last closing price of CAD 7.30 on May 10, 2022.

One-Year Technical Price Chart (as on May 10, 2022). Analysis by Kalkine Group

Note: The reference data has been partly sourced from REFINITV

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