Hamilton Thorne Ltd.

Hamilton Thorne Ltd. (TSXV: HTL) is a leading global provider of precision instruments, consumables, software and services that reduce cost, increase productivity, improve results and enable breakthroughs in Assisted Reproductive Technologies (ART), research, and cell biology markets.

Key Highlights:

• Jump in Cash from Operations: The group reported encouraging performance in the recent past and reported a surge in its cash flows aided by higher net income. For Q1FY21, the company reported net cash flow from operations at USD 1.499 million, significantly improved from USD 0.709 million in Q1FY20. The improved performance was due to a result of higher market share through the offerings of new products and services and coupled with a recent acquisition.
  

• Rise in ART Services: In the recent past, there was a shift in consumer preference towards the growing usage of Assisted Reproductive Technologies (ART) services, driven by increased obesity, environmental factors, fertility issues etc. Moreover, a rise of the emerging middle class in developing countries coupled with a surge in insurance & reimbursements programs and adaptation of several technologies has supported the higher demand for ART services. With the increase in world population, we believe the demand for the above clinical services is likely to remain elevated in the coming days.

Q1FY21 Financial Highlights:

• HTL announced its quarterly result, wherein the company posted sales of USD 11.518 million, improved from USD 10.395 million in the previous corresponding period (pcp).
• Gross profit surged to USD 5.875 million, from USD 5.222 million in pcp, thanks to higher revenue, partially offset by an increased cost of sales.
• Total expenses climbed to USD 4.606 million from USD 4.241 million in pcp, due to a higher general and administrative cost and slight increase in both research & development cost and general & administrative expense.
• Income from operations stood at USD 1.268 million, compared to USD 0.981 million in pcp.
• Net income stood significantly higher at USD 0.865 million v/s USD 0.145 million in pcp.

Q1FY21 Income Statement Highlights (Source: Company Report)

Risks: The group is focusing on organic growth and made some acquisitions recently. If the group was not able to achieve anticipated synergies from the new acquisitions, this would lead to lower-than-expected performance and subsequently loss of resources.

Valuation Methodology (Illustrative): EV to Sales

Stock Recommendation:

The recent acquisition of Tek-Event Pty Ltd. would enhance the company’s product portfolio and would mark the company’s presence across Australia, as it serves approximately 90% of in-vitro fertilization (IVF) clinics across Australia. Moreover, the company provides software and services to Assisted Reproductive Technology (ART), and the industry is likely to grow from USD 17.5 billion in 2017 to USD 23 Billion in 2022. Moreover, the IVF clinics are highly fragmented in nature, and the company’s acquisition strategy is likely to support the company’s market share in the coming days. Moreover, the company has a presence across the globe, and hence it could enhance its penetration across the potential regions easily. We have valued the stock using the EV to Sales based relative valuation method and have arrived at a single-digit upside (in percentage terms). For the said purposes, we have considered peers like Greenbrook TMS Inc, Quipt Home Medical Corp etc. Considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock of at the closing price of CAD 2.00 on June 10, 2021.

One-Year Technical Price Chart (as on June 10, 2021). Analysis by Kalkine Group

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

Quipt Home Medical Corp

Quipt Home Medical Corp (TSXV: QIPT) formerly Protech Home Medical Corp is a company that provides 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

• Increasing customer base and demand for respiratory equipment: The Company’s customer base increased 41% year over year to 56,972 unique patients served in Q2 2021 from 40,372 unique patients in Q2 2020. In addition, it saw strong demand for its respiratory equipment, such as Oxygen Concentrators and Ventilators, as well as CPAP replenishment and other supplies.
• 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

• Accelerated organic growth initiatives: The company is rapidly expanding as it has opened two new locations at in Daytona Beach, Florida and Concord, New Hampshire, focused on respiratory therapy products and services. It expects to derive strong revenue synergies from the initiative of opening new locations organically and will continue to implement its high touch service model in both new locations. Presently it has 51 locations across 11 U.S. States.

Financial overview of Q2 2021 (Expressed in thousands of US Dollars)

Source: Company

• In Q2 2021, the company’s revenue increased by 36% to USD 24.2 million, against USD 17.8 million in the previous corresponding period. This increase was due to organic growth and also from the acquisitions.
• Income from continuing operations posted by the company stood at USD 1.4 million, against USD 0.69 million in the previous corresponding period.
• The company posted a loss from continuing operations before tax of USD 12.4 million in the reported period against a profit of USD 3.1 million in the previous corresponding period. The loss was mainly due to change in fair value of derivative warrant liability and change in fair value of debentures.
  

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's record financial and operating performance in the second quarter demonstrate the strength and stability of its business strategy. The firm is thrilled to see the significant resurgence in its sleep business with the lifting of constraints across its operational footprint, and it continues to experience good demand throughout its product mix. Furthermore, the increasing customer base along its strong recurring revenue platform provides stability and consistency related to the company’s growth outlook. Therefore, based on the above rationale and valuation, we recommend a “Hold” rating at the closing price of CAD 7.45 on June 10, 2021. We have considered Hamilton Thorne Ltd, Cipher Pharmaceuticals Inc, Knight Therapeutics Inc, as the peer group for the comparison.

One-Year Price Chart (as on June 10, 2021). Source: Analysis by Kalkine Group

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

Disclaimer

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