Extendicare Inc.

Decent Increase in Revenue and Adjusted EBITDA: Extendicare Inc. (TSX: EXE) is a long-term care facilities company. The business has five segments including Long-term care; Retirement living; Home health care; Other Canadian operations and Corporate segment. As on 30 June 2020, the market capitalization of the company stood at CAD 501.90 million.

Quarterly Performance (For the Period Ended 31 March 2020): During the first quarter ended 31 March 2020, revenue of the company went up by 2.3% to CAD 268.8 million and adjusted EBITDA increased by CAD 0.3 million to CAD 19.9 million. In the same time span, earnings from continuing operations stood at CAD 1.9 million, up by CAD 0.8 million in the pcp. The decent financial performance of the company enabled the Board to declare CAD 0.04 per common share for the month of June 2020, which is payable on 15 July 2020.

Quarterly Financial Highlights (Source: Company Reports)

Key Risks: The company is exposed to various risks and uncertainties related to the effects of COVID-19. These risks include the length, spread and severity of the pandemic. In response to COVID-19, the softer domestic and global credit and capital markets and the ability to access capital on favorable terms may impact the financial results. Given these risks and uncertainties, investors are cautioned not to place undue reliance.

The company is operating in senior care industry. The company might face a decline in occupancy owing to COVID-19 Pandemic. Further any changes in government funding and reimbursement programs would hamper the operations of the company.

Outlook: While the company is completely focused on addressing the COVID-19 challenges in the near-term, it remains confident for its future. EXE also believes that with evolving market conditions and reduced severity of the pandemic, the demographic tailwinds, and the investments of the company in businesses will offer a variety of opportunities for the future.

Stock Recommendation: Despite the pandemic, the company delivered decent financial performance. It retained ample liquidity with cash and cash balance of CAD 105.8 million. As per TSX, the stock of EXE is inclined towards its 52-week low of CAD 4.91, proffering a decent opportunity for the investors to enter the market. On a TTM basis, the stock is trading at an EV/Sales multiple of 0.8x, lower than the industry median (Healthcare Providers & Services) of 1.8x. Considering the attractive trading levels, lower EV/Sales multiple, resilient business performance and positive long-term outlook, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of CAD 5.61, up by 2% on 30 June 2020.

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

HLS Therapeutics Inc.

Exclusive Distributor of MyCare™ Insite Point-of-Care Device: HLS Therapeutics Inc. (TSX: HLS) is a specialty pharmaceutical company which is focused on the acquisition and commercialization of branded pharmaceutical products in the North American markets. As on 30 June 2020, the market capitalization of the company stood at CAD 577.40 million. The company has announced that it has become an exclusive Canadian distributor for the MyCare™ Insite point-of-care device and its related line of diagnostic tests from Saladax Biomedical, Inc.

Quarter Performance (For the Period Ended 31 March 2020): During the quarter ended March 2020, the company reported growth in revenue along with positive adjusted EBITDA and cash from operations. In Q1FY20 adjusted EBITDA of the company witnessed a year-over-year decline of USD 2.2 million because of the increased selling and marketing costs to support the Vascepa launch in Canada, and the higher cost of product sales. The company generated USD 5.3 million from operations and reported a cash balance of USD 41.6 million. It reported a stable balance sheet with debt balance of USD 92.4 million. The decent financial and operational performance enabled the Board to declare a dividend of CAD 0.05 per share.

Quarterly Financial Highlights (Source: Company Reports)

Key Risks: HLS is exposed to various risk factors including risks related to the specialty pharmaceutical industry, economic factors, and many other factors beyond the control of HLS. Future growth of the company is highly dependent on the performance of Vascepa. Any deviation from the forecasted performance may adversely affect the company.

Future Expectations and Growth Opportunities: HLS continues with its roll-out of CSAN Pronto into the Canadian market; however, this process is impacted by the global pandemic and the activities of the company is limited to those which are suitable in the current environment. The launch of Vascepa and its new drug submissions for PERSERIS and Trinomia will drive future growth. HLS is focused on digital-based strategies to connect and interact with physicians. 

Stock Recommendation: HLS has a strong financial position and has enormous potential to drive the growth in business. The stock is inclined towards its 52-week low of CAD 18.19, however, holds further potential for growth. The stock of HLS gave a return of 47.34% in the past three months and a return of 25.51% in the past one month. During FY19, EBITDA margin of the company was 51.5% as compared to the industry median of 12.5%. In the same time span, asset to equity ratio of the company was 1.79x, lower than the industry median of 2.56x. On a TTM basis, the stock is trading at an EV/Sales multiple of 2.2x, lower than the industry median of (Healthcare) of 10.2x. Considering the trading levels, decent financial performance, returns in the past one month and positive long-term outlook, we recommend a ‘Speculative Buy’ rating on the stock at CAD18.19, up by 1.3935% on 30 June 2020.

HLS Daily Technical Chart (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.