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 reaffirmed:The management strongly believes in generating net revenues of approximately USD 26 million to USD 27 million from the 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, for Q4 2020, the total revenues, are estimated to be in a range of USD 31 million to USD 33 million.
• Foray into the new sector:The Company announced its foray into “Remote Patient Monitoring” sector as it acquired a 5% interest in VeruStat, Inc, a newly created company focusing on (“RPM”), for approximately USD 600,000 using cash in hand. The investment is part of the Company’s launch into the healthcare technology sector. It would immediately allow the Company’s salesforce to offer a new revenue source to its physician network around the country.
• 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, not covered by the group.

Source: Company

• Healthy balance sheet: At the end of Q3 2020, the company holds a very solid balance sheet with approximately USD 32.4 million in cash which is at an all-time high, USD 11.5 million of AR, and an overall working capital balance of roughly USD19.6 million. The company’s core business AR during the reported quarter were at the lowest level, which is a continuation of stat that its new workflow system is operating effectively. Also, with the optimized internal systems, the company is driving better cash collection cycles and lower bad debts for aging receivables is acknowledgeable.

Financial overview of Q3 2020 (Expressed in thousands of U.S. Dollars)

Source: Company

• Significant growth was registered in Q3 2020, as the 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, including approximately USD 8.6 million of product sales and services related to the ongoing COVID-19 pandemic.
• In Q3 2020, the company's operating income was USD 4 million, increased by 90% compared to USD 2.1 million in Q3 2019, due to higher revenues.
• Net income registered by the Company in Q3 2020, totalled USD 2.8 million, compared to USD 2.85 million in pcp, partially offset by higher income tax provisions and higher SG&A expenses. 

Risks associated with investment

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

Valuation Methodology (Illustrative): EV to Sales

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

Stock recommendation

The Company expects to generate net revenues in a range of USD 31-33 million. The group witnessed a significant growth in the core business and generated revenue of USD 25 million in the reported quarter, which is quite impressive. A foray into a new sector would also immediately allow the Company's salesforce to offer a new revenue source to its physician network around the country. 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, better cash collection cycles and lower bad debts for aging receivables, reflects the Company's sturdy health. Therefore, based on the above rationale and valuation, we have given a "Speculative Buy" rating at the closing price of CAD 12.54 on February 3, 2021. We have considered Electromed Inc, Itamar Medical Ltd, etc. as the peer group for the comparison.

1-Year Price Chart (as on February 03^rd, 2021). Source: Refinitiv (Thomson Reuters)

Andlauer Healthcare Group Inc.

Andlauer Healthcare Group Inc. (TSX: AND) is a prominent and growing supply chain management company that offers specialized platform to the third-party logistics and specialized transportation solutions for the healthcare sector.

Key Updates:

• Strong EBITDA Growth: Over the years, the group reported solid growth in EBITDA, driven by the company’s focused on multi-pronged growth strategy, and offering products as per the customers’ needs. During FY16 to FY19, the group reported a ~10% growth in EBITDA, which is encouraging. We expect the momentum to continue in the coming quarters, driven by the increasing number of Healthcare and Adjacent Products with Unique Logistics Need and higher demand for distributed and Ancillary Healthcare Logistics Services.
• Strategic Acquisition to support future growth: The company is investing in growing verticals across new geographies and has completed the tuck-in acquisitions of TDS Logistics Ltd. and McAllister Courier Inc. during October 2020. The above acquisition would increase the reach of the group’s services and would mark its presence across Ontario.
• Better than industry margins: The group reported improved operational efficiency and posted gross margin, EBITDA margin and operating margin at 59.4%, 26.6% and 17.4%, respectively in Q3FY20, significantly higher than the industry median of 32.6%, 13.4% and 9.6%, respectively. Notably, in Q3FY20, the group reported a net margin of 11.3%, significantly higher than the industry median of 3.5%.
• Results Announcement: The group would disclose its fourth quarter FY20 results on February 24, 2021.

Q3FY20 Financial Highlights:

• AND declared its third- quarter results, wherein the company posted revenue of CAD 75.805 million, higher than CAD 70.844 million in the previous corresponding period (pcp). The increase was aided by improved performance from both the segments.
• Operating Income rose to CAD 13.165 million, from CAD 11.319 million in Q3FY19, driven by higher revenue and controlled direct operating expenses (CAD 17.996 million versus CAD 18.279 million in pcp), while a higher cost of transportation and services (CAD 30.812 million versus CAD 29.570 million in pcp) and increase in selling, general and administrative expenses (CAD 6.816 million versus CAD 5.108 million in pcp) remained a drag.
• Net income and comprehensive income stood at CAD 8.596 million, as compared to CAD 7.763 million in pcp, driven by higher operating income, partially offset by higher interest expense and a lower interest income.
• The group reported cash and cash equivalents of CAD 48.545 million, while total assets were recorded at CAD 240.788 million.

Q3FY20 Income Statement Highlights (Source: Company Reports)

Risks: If further restrictions imposed by the Government, the company might witness lower traction within the Specialized Transportation and Healthcare Logistics segments, which might impact the cash flows, working capital, and profitability in the foreseeable future.

Valuation Methodology (Illustrative): EV to Sales based

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

Stock Recommendation:

Over the years, the company has constantly increased its client-base and has successfully added new clients as a foundation for growth, while the group is focusing on new business opportunities from the sector. The stock of AND appreciated ~22% and ~63% in the last nine months and one year, respectively. We have valued the stock using the EV to Sales-based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered peers like Cargojet Inc, Chorus Aviation Inc etc. Considering the aforesaid facts, we recommend a ‘Speculative Buy’ rating on the stock at the closing market price of CAD 35.23 on February 03, 2021.

1-Year Price Chart (as on February 03^rd, 2021). Source: Refinitiv (Thomson Reuters)

Disclaimer

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