Bausch Health Companies Inc.

Bausch Health Companies Inc. (TSX: BHC) is a global specialty pharmaceutical, consumer health, and medical device company with a focus on branded products for the dermatology, gastrointestinal, and ophthalmology markets. 

Key Highlights:

• Improved Operational Efficiency: The company is focused on improving its cost structure through prudent cost management and reported ~USD 100 million of cost savings in Q3FY20, which is commendable and augurs well to support the margins.                                     

Source: Company Reports

• Expansion through E-commerce channel: The company is focusing on driving sales through the e-commerce channel. Due to the ongoing social-distancing and other government restrictions, the US Consumer segment saw more than 100% increase in e-commerce channel in the recent past. We believe the above segment is likely to add improved traction in the foreseeable future.

• Reduced debt along with ample liquidity: The group reduced its debt by USD 100 million in Q3 2020, and USD 420 million during the first nine months of FY 2020, through its cash flows, which is commendable. At the end of the reported quarter, the company had a Cash and cash equivalents of USD 977 million and revolving credit facility of USD 1.22 billion providing ample liquidity to run the operations. Moreover, the company expects to generate approximately USD 1 billion of cash from operations in FY 2020.

• Expanded public coverage of Pr VYZULTA ®: Recently, the company announced that Pr VYZULTA ®, used for the treatment of glaucoma had expanded public drug program reimbursement in Canada in the jurisdictions of British Columbia, North West Territories, the Yukon and Veteran Affairs. The product has approval in seven countries now and reported revenue growth of ~30% on a y-o-y basis in 3Q20.

Q3FY20 Financial Highlights:

• BHC announced its quarterly results, wherein the company posted revenue of USD 2.14 billion, lower than USD 2.21 billion in the previous corresponding period (pcp). The decline was primarily due to a ~10% y-o-y dip in Salix segment.
• The company reported total expense of USD 1,678 million, lower than USD 1,880 million in the previous corresponding period, supported by lower selling, general and administrative expense, a decline in amortization of intangible assets and research and development costs.
• Operating income stood higher at USD 460 million, higher than USD 329 million in pcp.
• Adjusted EBITDA stood at USD 948 million, as compared to USD 942 million in Q3FY19.
• The company posted net income of USD 70 million, as compared to a net loss of USD 48 million in Q3FY19.
• As on Q3FY20, the company reported cash, cash equivalent and restricted cash of USD 1,988 million, while total debt was recorded at USD 24,601 million. Moreover, the company repaid ~USD 100 million of debt during the quarter from its cash generations from operations.               

Q3FY20 Income Statement Highlights (Source: Company Reports)

Key Risks: The company might witness lower traction due to the ongoing pandemic on account of disruption in the supply chain and logistics. Moreover, the products are subjected to several approvals, and a delay in the approval might act as a drag for the company.

Valuation Methodology (Illustrative): EV to Sales based

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation:

U.S. Vision Care reported strong revenue growth of 20% on y-o-y basis, driven by Bausch + Lomb ULTRA®, and we expect the momentum to continue in the near-term future. Moreover, the company’s Biotrue® ONEday product witnessed a sequential growth of more than 100%, which indicates higher acceptability of the particular product. Going forward, the company expects a revival in the sales volume, aided by strong brand positioning and an attractive product pipeline. We have valued the stock using EV to Sales based relative valuation approach and arrived at a target price offering lower double-digit upside potential (in % terms). We have considered peers like Viatris Inc Perrigo Company PLC etc. Hence considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock at the closing price of CAD 26.34 on December 9, 2020.

BHC Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Viemed Healthcare Inc

Viemed Healthcare Inc (TSX: VMD), provides equipment and home therapy to service patients with various respiratory diseases. The group is a high-level service provider using best in class technology and equipment to increase the quality of life in the homes of patients with respiratory conditions.

Key Highlights

• Revenue Guidance: For Q4 2020 the company expects to generate net revenues of approximately USD 26 million to USD 27 million from its core business, and additional revenues of about USD 5 million to USD 6 million from sales and support related to the COVID-19 pandemic. Hence the total revenues for Q4 2020, are estimated to be in a range of USD31 million to USD33 million.

• Attractive industry growth opportunity: At the age of 65, patients qualify for Medicare. Ten thousand people are expected to reach the age of 65 years daily for the next 19 years. Expenditures on Medicare are expected to grow at a 5.4% CAGR from USD 54.9 billion to USD 74.0 billion in 2023, which provides ample opportunity to grow.

Source: Company

• Healthy balance sheet: The Company has the highest cash balance ever of USD 32.4 million on September 30, 2020, as compared to USD 13.4 million at December 31, 2019, and an overall working capital balance of USD 19.6 million against USD 1.9 million at December 31, 2019. Total long-term debt as of September 30, 2020, was USD 7.2 million.

• Untapped market opportunity: The company is well-positioned to pursue sustainable growth and profitability through leveraging its brand awareness, realizing operational synergies, expansion of its product and service offerings and pursuing growth into new US states.

Source: Company

Financial overview of Q3 2020

Source: Company

• Significant growth was registered in Q3 2020 by the Company's core business. Net revenues from core business stood at USD 24.9 million, an increase of 22% compared to the previous corresponding period. Total revenues were USD 33.4 million, which included approximately USD 8.6 million of product sales and services related to the ongoing COVID-19 pandemic.
• Net income registered by the Company in Q3 2020 totalled USD 2.8 million, compared to USD 2.9 million in pcp. 

Risk associated with investment

The company is susceptible to a variety of risks including the uncertainty from the general business, market and economic conditions, impact of the COVID-19 pandemic, financial constraints, the ability of the company to implement business strategies and pursue opportunities, etc. 

Valuation Methodology (illustrative): EV to Sales

All forecasted figures and peers have been taken from Thomson Reuters 

Stock recommendation

The company recorded decent growth in its revenue during Q3 2020. We expect the momentum to continue in the next quarter as the company expects to generate net revenues of USD 31 million-USD 33 million. At present, the company is maintaining its highest ever cash balance of USD 32.4 million, with long-term debt of only USD 7.2 million in the books, which reflects the sturdy health of the company. Therefore, based on the above rationale and valuation, we have given a “Speculative Buy” rating at the closing price of CAD 11.75 on December 9, 2020. We have considered Protech Home Medical Corp, Itamar Medical Ltd, Vapotherm Inc, etc. as the peer group for the comparison.

Source: Refinitiv (Thomson Reuters)

Andlauer Healthcare Group Inc.

Andlauer Healthcare Group Inc. (TSX: AND) is an investment holding company and operates in two segments, namely Specialized Transportation and Healthcare Logistics. The company generates maximum revenue from the Specialized Transportation segment.

Key Highlights:

• Impressive Revenue and profitability growth: The company has a wide presence across different segments like Logistics & Distribution, Packaging Solutions, Ground Transportation etc., which provides a stable operational performance. The company delivered a CAGR of ~9% in revenue since 2016 while EBITDA grew at a CAGR of ~10% at the same time.                                     

 Source: Company Presentation 

• Improved Sectoral outlook: The company is expected to be benefited from the higher spending on healthcare logistics and transportation segment across North America, which stood above the GDP growth.

Source: Company Presentation 

Q3FY20 Financial Highlights:

• AND announced its quarterly results, wherein the company posted revenue of CAD 75.805 million, increased from CAD 70.844 million in the previous corresponding period (pcp). The growth was driven by improved healthcare activities such as elective surgical procedures and the re-opening of clinics, including dental clinics, optometric clinics, animal health clinics and veterinary hospitals.
• Operating Income increased to CAD 13.165 million, from CAD 11.319 million in Q3FY19, supported by higher revenue, partially offset higher by a higher operating expense.
• Net income and comprehensive income stood at CAD 8.596 million, as compared to CAD 7.763 million in pcp, driven by improved performance from the company’s both segments.

Source: Company Presentation

• The company posted cash and cash equivalent at CAD 48.545 million, while total assets were recorded at CAD 240.788 million.

Q3FY20 Income Statement Highlights (Source: Company Reports)

Risks:  Due to lower economic activity and a sluggish business scenario, the company might witness lower traction across the Specialized Transportation and Healthcare Logistics segments.

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The company is a leading and growing supply chain management group with a platform of customized logistics and specialized transportation solutions for the healthcare sector. The stock of AND appreciated ~69% in the last nine months driven by increasing demand for Distributed and Ancillary Healthcare Logistics Services in the recent past. The company is focusing on leveraging its existing nation-wide network of facilities, dedicated equipment, and client relationships to drive improved prospects in coming days. We have valued the stock using EV to Sales based relative valuation approach and arrived at a target price offering a lower double-digit upside side potential (in % terms). We have considered peers like Mullen Group Ltd, Canadian Pacific Railway Ltd etc. as peers. Hence, considering the above-mentioned facts, current trading levels, we have given a ‘Speculative Buy’ rating on the stock at the closing price of CAD 39.66 on December 09, 2020.

AND Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Sienna Senior Living Inc.

Sienna Senior Living Inc. (TSX: SIA), is a Canada-based seniors' living providers. The Company serves the independent living (IL), independent supportive living (ISL), assisted living (AL), memory care (MC) and long-term care (LTC) through the ownership and operation of seniors' living residences in the Provinces of British Columbia and Ontario. 

Key highlights 

• An income play:SIA shares are offering a lucrative dividend yield of 7% at the last traded price. More importantly, the company has a track record of consistent dividend payment over the past 10-years. A high yielding stock with a track record of consistent dividend payment tend to remain in the investor’s limelight, especially amid times when interest rates are at record low.

• Solid Financial Position: The Company maintains a strong financial position with significant liquidity and a substantial unencumbered asset pool. In Q3 2020, liquidity increased to CAD 210.3 million, from CAD 144.05 million as on December 31, 2019, comprised of cash and cash equivalents and available credit facilities.

Source: Company

• Rising average same property occupancy: In the Retirement portfolio, average same property occupancy was 81.4% in Q3 2020. At the end of September, occupancy was 60 bps higher month-over-month to 81.7% due to intensive sales and marketing initiatives during the quarter. The company collected 99%+ rent, which looks impressive.

Source: Company 

Financial overview of Q3 2020

Source: Company 

• In Q3 2020, the company posted muted revenue of CAD 166.8 million, as compared to CAD 168 million in the previous corresponding period.
• The company reported an operating loss of CAD 0.29 million, against a profit of CAD 15.4 million in pcp. The reported loss was primarily due to net pandemic expenses, which included additional staffing and PPE costs to weather COVID-19 led challenges.
• Net loss stood at CAD 6.4 million in Q3 2020, as against a profit of CAD 3.7 million in pcp, primarily due to high operating and administrative expenses. 

Risks associated with investment

The Company is subject to general business risks, including those inherent in the seniors’ living sector. These risks include changes in government regulation and oversight, changes in consumer preferences, fluctuations in occupancy levels and business volumes, competition from other senior’s care providers, changes in neighbourhood or location conditions and general economic conditions. 

Valuation Methodology (Illustrative):  EV to EBITDA 

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

Stock recommendation: The company reported improvement in occupancy in the retirement portfolio at the end of the reported quarter and operations are getting benefitted from the re‐opening of residences for in‐person tours, which is a big positive for the company. We believe that in the upcoming time, the net pandemic expenses, which consisted primarily of additional staffing and PPE costs to manage COVID-19, would come down gradually, which will improve its EBITDA. Further, with a strong financial position along with a healthy dividend yield of around 7%, the stock is a good bet for the long-term investors. Based on the rationales discussed above and valuation, we have given a “Speculative Buy” rating at the closing price of CAD 13.26 on December 9, 2020. We have considered Chartwell Retirement Residences, Killam Apartment REIT, Extendicare Inc, etc. as the peer group for the comparison.

1-Year Price Chart (as on December 09, 2020, after the market close). Source: Refinitiv (Thomson Reuters)

Extendicare Inc.

Extendicare Inc. (TSX: EXE), is a Canada-based company that offers senior care across Canada. The Company’s segments include long-term care (LTC); retirement living; home health care; other Canadian operations and Corporate Segment.

Key highlights 

• An income play:Despite the challenging operating environment, the company maintained its dividend payment, which shows the group's financial strength and suggests that the group is a friend of income investors. At the last traded price, the was offering a dividend yield of ~7.2%, which is lucrative considering the current interest rate environment.

• Stable occupancy rate: Despite the current economic downturn, the company reported average occupancy rate at above 95%, which is appreciable. Furthermore, the company has approvals on several redevelopment projects and working to improve project economies before proceeding. Net operating margin stood stable at above 10%, reflects operational resiliency.

Source: Company 

Financial overview

Source: Company 

• In Q3 2020, the company reported revenue of CAD 296.8 million, increased by CAD 14.1 million or 5.0% as against CAD 282.7 million in Q3 2019. This increase in revenue was primarily driven by funding related to COVID-19, LTC funding enhancements, expansion of the retirement living operations and growth in other operations, partially offset by a decline in home health care volumes.
• EBIDTA in Q3 2020, increased by CAD 40 million and stood at CAD 63.7 million, as against CAD 23.8 million in the previous corresponding period. The increase in EBITDA was primarily due to higher revenues and curtailed operating expenses.
• The company reported a net income of CAD 34.6 million in the reported quarter, as against CAD 5.3 million in pcp, primarily due to above-stated reasons.

Risk associated with investment

The Company is subject to general business risks, including those inherent in the seniors’ living sector. These risks include changes in government regulation and oversight, changes in consumer preferences, fluctuations in occupancy levels and business volumes, competition from other senior’s care providers, changes in neighbourhood or location conditions and general economic conditions. 

Stock recommendation

Extendicare is one of Canada’s largest seniors care providers and offers high-quality care. We believe technology-driven transformation would likely to improve performance and organic growth for the corporation in the foreseeable future. The company reported an improved financial performance year over year in retirement from lease-up activity and in SGP from growth in client base. The company has strong financial flexibility and liquidity with CAD 170M of cash on hand at Q3 2020 and no scheduled debt maturities until Q1 2022. The stock also offers an attractive dividend yield of ~7.2% on an annualized basis. On the valuation front, the stock is available at forward EV to Sales multiple of 0.9x, which is significantly lower than the industry (Healthcare Provider & Services) median of 1.9x. Hence, we recommend a “Speculative Buy” rating on the stock at the closing price of CAD 6.68 on December 9, 2020.

Source: Refinitiv (Thomson Reuters)

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.