Quipt Home Medical Corp.

Quipt Home Medical Corp. (TSXV: QIPT) is a healthcare company providing in-home monitoring equipment, supplies, and services to patients. The company's services consist of Daily & Ambulatory Aides, Power Mobility, INR Self-Testing, Respiratory Equipment Rental, Home ventilation, Oxygen Therapy, and Sleep Apnea & PAP Treatment. 

Key highlights

• Accelerating organic growth: The company continued to deliver excellent results, highlighted by significant organic growth, which was fueled by strong performance across the board. It saw 7% organic growth in Q3 2021 compared to the same period in 2020, and 11 % organic growth in YTD 2021 compared to the same period in 2020. Furthermore, its recurring revenue has shown to be reliable, accounting for more than 75% of overall income.
• Increasing customer base and demand for respiratory equipment: From 37,128 unique patients treated in Q3 2020 to 64,578 unique patients served in Q3 2021, the Company's client base rose by 74% year over year. Through the continued use of technology and centralized intake processes, respiratory resupply set-ups deliveries also increased by 181% to 40,580 in the reported period, compared to 14,436 for the same period ended June 30, 2020.
• Industry expansion in a highly fragmented market: The current size of the DME sector is merely a fraction of what it would become in the next two decades, with an estimated 10,000 individuals turning 65 every day over the next 15 years. The sector's current performance supports estimates of a 6.0% CAGR from 2021 to 2028, with the entire industry size estimated to exceed USD 84 billion in 2028. The company believes it is well positioned to capitalize on these outstanding market dynamics, given its track record of making smart, accretive acquisitions.

Source: Company

Financial overview of Q3 2021 (Expressed in thousands of USD)

Source: Company

• In Q3 2021, the company’s revenue increased by 41% to USD 26.2 million, against USD 18.6 million in the previous corresponding period. This increase was mainly due to organic growth and from the acquisitions.
• On the back of higher operating expenses, the company posted operating loss at USD 1.1 million compared to the profit of USD 0.7 million in the pcp.
• Primarily due to change in fair value of derivative warrant and debentures the company managed to post net income of USD 6.3 million in Q3 2021 compared to a loss of USD 2.5 million in pcp.

Risks associated with investment

The Company’s activities are exposed to various risks beyond the Company’s control that could affect its operations and business. Adverse changes in the conditions in the specific markets for the Company’s products and services, conditions in the domestic or global economy generally, competition, currency risk, and interest rate risk are there.

Valuation Methodology (Illustrative): EV to Sales

Stock recommendation

The company continued to produce exceptional results, highlighted by the robust organic growth, driven by the strong execution displayed across the organization. The record third quarter financial and operating results are a direct result of the group’s ability to leverage ongoing technology implementation and workflow processes to improve the operations. Also, a bullish regulatory landscape provides an extraordinary opportunity to the company to scale aggressively. The company kept itself busy with the acquisitions and with the expand from a regional homecare provider into a national provider, within the United States we strongly believe that it will be a driver of future organic growth. Therefore, based on the above rationale and valuation, we recommend a “Hold” rating on the stock at the closing price of CAD 7.76 on October 7, 2021. We have considered Hamilton Thorne Ltd, Medical Facilities Corp, Premier Health of America Inc, etc. as the peer group for the comparison.

One-Year Technical Price Chart (as on October 07, 2021). Source: REFINITIV, Analysis by Kalkine Group

Hamilton Thorne Ltd

Hamilton Thorne Ltd (TSXV: HTL) provider of precision instruments, consumables, software and services to the assisted reproductive technologies (ART), animal breeding, stem cell, and developmental biology research markets.

Key Highlights:

• RSI Indicates a Potential Pull-back: The leading momentum indicator hovering in a steep oversold territory at 15, which indicates that a potential pull-back could take place from the current trading level.
• No Balance Sheet Risk: Hamilton Thorne maintains a strong balance sheet with Debt-to-Equity ratio of 0.15x at the end of June 2021, compared to industry median of 0.22x. Further the company has robust debt protection metrics as interest coverage ratio at the end of June 2021, stood at 15.84x, which implies virtually no balance sheet risk.
• Insiders Net Buyer Over Last 1-Year: Over the last one-year insiders are net buyers in the HTL shares. Insiders buying provides confidence for a positive business prospect of the company.

Insiders Activity. Source: Refinitiv, Analysis by Kalkine Group

• Strong Competitive Advantage: The company has consistently maintained a gross margin above 50% over the past 12 quarters and EBITDA margin above 14% in the same period apart from June 2020 quarter which was broadly an abnormal period due to COVID-19. Maintaining a healthy margin over long-term period reflets the strength of business model, management quality and pricing power of the company within the industry.

Financial Highlights: Q2FY21 (all figures are in USD)

Source: Company Filing

• Solid topline Performance: Revenue up 71% during the Q2FY21 on a YoY basis to USD 12.5 million.
• Gross profit Expansion: Gross profit during the quarter under review surged by 69% to USD 6.4 million. Gross margin slightly down to ~ 51.2% vs 51.7% a year before.
• Reported Positive Bottom-Line Numbers: During the second quarter of 2021, the company reported a net income of USD 0.48 million against net loss of USD 0.59 million reported a year before.

Risk Associated with the Investment: Resurgence in the COVID-19 cases, lower demand offtake of the products, and Forex risks.

Stock Recommendation

The company is built upon strong fundamentals and solid start of fiscal 2021 continued in the second quarter as well with solid improvement in the company’s financials and debt reduction. Further, the current RSI level, which is hovering into steep oversold zone, indicates that a potential pullback could take place from the current trading level. On the valuation front, the company is trading at an EV/Sales multiple of 2.9x as compared to the industry median of 5.1x. Further, the company is fundamentally sound with strong competitive advantage. Hence, we recommend a “Hold” rating on the stock at the closing price of CAD 1.65 on October 7, 2021.

One-Year Technical Price Chart (as on October 07, 2021). Source: REFINITIV, Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

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.