Quipt Home Medical Corp

Quipt Home Medical Corp, (TSX: 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

• Accelerated organic growth initiatives: The company is rapidly expanding, with two new facilities focusing on respiratory treatment goods and services in Daytona Beach, Florida and Concord, New Hampshire. Furthermore, it expects good revenue synergies from its drive to create new sites organically, and it would continue to use its high-touch service style in both new locations. It now has 51 sites in 11 states around the United States.

• Increasing customer base and demand for respiratory equipment: From 40,372 unique patients treated in Q2 2020 to 56,972 unique patients served in Q2 2021, the Company's client base rose by 41% year over year. It also experienced a surge in demand for its respiratory equipment, such as Oxygen Concentrators and Ventilators, as well as CPAP refills 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.

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 with 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 on the stock at the closing price of CAD 7.46 on July 20, 2021. We have considered Hamilton Thorne Ltd, Medexus Pharmaceuticals Inc etc., as the peer group for the comparison.

One-Year Technical Price Chart (as on July 20, 2021). Source: REFINITIV, Analysis by Kalkine Group

Medical Facilities Corp

Medical Facilities Corp (TSX: DR) owns a diverse portfolio of surgical facilities in the United States. Through its wholly owned subsidiaries, the company owns controlling interests in four specialty hospitals and six ambulatory surgery centers. The hospitals offer a range of non-emergency surgical, imaging, diagnostic and pain management procedures, and other ancillary services such as urgent care and occupational health.

Key Highlights

• Increase in profitability and reduction in debt: In Q1FY21, the firm reduced its overall debt by 10% to USD 53.6 million, which is good given the present economic situation, as most firms are raising their leverage to maintain liquidity levels. Lower financing costs would result from a reduction in overall debt. Furthermore, the firm has recently achieved greater profitability, with adjusted EBITDA of USD 25.1 million in Q1FY21, up from USD 18.6 million in the previous corresponding period.

• Expanding Arkansas Surgical Hospital: Recently, the company’s Arkansas Surgical Hospital has announced that it would expand its post-anesthesia care centre by 4,590 square feet, adding two operating rooms and three new recovery beds. By the end of the year, the project is expected to be completed. Post expansion the Hospital would have 13 operating rooms. We anticipate that after expanding, the firm would be able to serve a larger number of patients, resulting in increased revenues.

• Industry beating margins: The Company maintained its pace and witnessed spirited performance across its margin matrix. In addition, the management’s solid determination helped them leap the industry median margins on many fronts in Q1 2021, which exhibits the competitive advantage of the company within the industry. The chart below gives a glimpse of this. 

• Consistent dividend distribution: The company reported a consistent dividend distribution in the past, backed by stable cash flows, which is a key positive. Recently, the group paid a quarterly dividend of USD 0.07 per common share on July 15, 2021. Moreover, at the last closing price, the stock was offering a dividend yield of 3.67%, which looks impressive considering the persisting interest rate scenario.

Financial Overview of Q1FY21

Source: Company

• In Q1 2021 the company posted total revenue and other income of USD 98.1 million, depicting a growth of 5.8% against USD 92.7 million in pcp. The increase was driven by higher income from the Facility service segment.
• The group reported lower operating expense at USD 79.7 million, from USD 81.7 million in pcp. The decline was primarily due to lower general and administrative expenses and lower depreciation and amortization expenses, partially offset by higher salaries and benefits costs.
• Income from operations soared to USD 18.3 million compared to USD 11.0 million in pcp.
• Income before income tax for the reported period stood at USD 12.1 million compared to USD 14.2 million in pcp.
• Net income stood at USD 10.3 million, declined from USD 14.6 million in Q1FY20. The decline was majorly due to a loss from the change in value of exchangeable interest liability amounting to USD 1.948 million, as compared to an income of USD 7.027 million in pcp.

Risks associated with investment

Due to the restrictions imposed by the Federal Government, the company might witness a hindrance in its facilities, which might take a toll on the overall company’s performance.

Valuation Methodology (Illustrative): EV to Sales

*1USD=1.27CAD 

Stock recommendation 

The company is enthusiastic about its projection for 2021 as vaccines continue to be released. A crucial benefit is that case volumes are continuing to return to pre-COVID-19 levels, as observed by the organization in Q1 2021. Furthermore, the firm is well-positioned to capitalize on the correct growth prospects because of its robust balance sheet. The company is also expanding its Arkansas Surgical Hospital, and we expect that after the expansion, it would be able to serve more patients, resulting in increased future revenues. Hence, considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock at the closing price of CAD 7.64 on July 20, 2021.

One-Year Technical Price Chart (as on July 20, 2021). Source: REFINITIV, Analysis by Kalkine Group

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

Disclaimer

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