CloudMD Software & Services Inc.

CloudMD Software & Services Inc. (TSXV: DOC) is digitizing the delivery of healthcare by offering patients access to all points of their care from their phone, tablet or desktop computer through SaaS-based health technology solutions.

Key Highlights:

• Expansion of IDYA4’s Real Time Intervention Platform: The company recently completed the acquisition of IDYA4, a leading health technology company focused on data interoperability and cybersecurity based in the United States. From the second half of FY20 onwards, rising numbers of Substance Use Disorders diseases has remained a major challenge across North America. The key reason being the psychological and emotional impact due to COVID-19 pandemic upon the North Americans. According to the Centers for Disease Control and Prevention (CDC) data, both the USA and Canada are witnessing similar trends of rising patients from June to August of 2020. The IDYA4’s platform enables access to healthcare data for the successful treatment and rehabilitation of the affected patients. Notably, IDYA4’s Real Time Intervention Platform has been implemented across 38 states in the United States, while the group is focusing on expanding and scaling the platform further across the United States and in Canada in the coming months.

• Solid Organic growth from EHS: After the acquisition of Enterprise Health Solutions (EHS) division in January 2021, the group has secured more than CAD 5 million in new, multi-year customer contracts for mental and physical health solutions. The EHS Division also provides operational synergies through centralizing marketing, technology and finance functions which leads to annual cost savings around CAD 500,000. The Management expects that the momentum would likely to continue in the coming days, driving additional profit and organic growth across the entire division. 

• Expectation of Strong financials:  Company anticipates annual pro forma revenue growth rate of over 20% with healthy gross margins exceeding 50%.

Q3FY20 Financial Highlights:

• The group declared its quarterly results, wherein the company posted revenue of CAD 3.358 million, v/s CAD 2.165 million, up by 55% from the previous corresponding period (pcp). The increase in revenue mainly resulted from the Clinic service & Pharmacies segment, up by 62% YoY followed by SaaS model digital service segment, up by 22% YoY.
• Operating loss recorded at CAD 2.679 million, as compared to a loss of CAD 0.753 million in the previous corresponding period (pcp). The operating loss resulted from spike in wages and salaries, increased marketing cost and professional fees followed by increased administration expenses.
• The company posted a net loss of CAD 2.724 million, v/s a loss of CAD 0.809 million in Q3FY19.
• Cash and cash equivalents stood at CAD 33.949 million, while total assets stood at CAD 55.329 million.

Q3FY20 Income Statement Highlights (Source: Company Report)

Risks: The operations depend upon the product acceptability across the targeted audience, while a change in consumer preferences might dampen the overall demand dynamics. Moreover, the arrival of a new player might lead to price competition.

Valuation Methodology (Illustrative): EV to Sales based

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation:

After a solid up move of ~160% and ~302%, respectively, in the last nine months and one year, the stock of DOC consolidated as investors booked profit amid uncertain economic environment. Going forward, the Company expects IDYA4 to report revenue growth rate higher than 45%, which leads to annual gross revenue of more than USD 6.0 million and USD 8.5 million in FY21 and FY22, 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 Joint Corp, WELL Health Technologies and Blackline Safety Corp etc., as a peer group for the comparison purpose. Considering the aforesaid facts, we recommend a ‘Speculative Buy’ rating on the stock of DOC at the closing market price of CAD 1.77 on March 24, 2021.

One-Year Price Chart (as on March 24, 2021). Source: Refinitiv (Thomson Reuters)

Questor Technology Inc

Questor Technology Inc. (TSXV: QST) is an environmental cleantech company. The Company is active in Canada, the United States, Europe and Asia and is focused on clean air technologies that improves air quality, supports energy efficiency and greenhouse gas emission reductions.

Key Highlights

• Enhanced regulations create demand for the Company’s services:  The United States Environmental Protection Agency (EPA) issued regulations to reduce harmful air pollution arising from crude oil and natural gas industry activities with a particular focus on the efficient destruction of volatile organic compounds (VOC’s) and hazardous air pollutants (HAP’s). After this, California has banned open flaring by 2021, and other US states are working on enhancing regulations to deal with waste gas emissions. Mexico set a target to reduce methane emissions by 75% by 2025. We believe all these regulations create an opportunity for the Company to eliminate the venting through its clean combustion technology.

• Rising demand from non-traditional markets: The Company has seen some renewed interest in its products and services, including interest from non-traditional markets. It witnessed an increased demand for the ORC units as it finalized a contract with a client for one of these units to be installed in the southern United States. This client has many other facilities in the United States, and there is potential to install more units at these facilities in the future. All of these factors are very encouraging.

• Fulfilling client’s requirements from small scale to large scale: The Company’s highly specialized technical team works with the client to achieve 99.99% combustion efficiency. The incinerators vary in size to accommodate small to large amounts of gas handling ranging from 20 mcf/d to 5,000 mcf/d. The Company’s incinerators are currently used in multiple segments of the energy infrastructure industry, including drilling, completions, production, midstream, downstream, transportation and distribution, providing ample diversity. 

Financial overview of Q3 2020

Source: Company

• In Q3 2020, the company posted revenue of CAD 1.1 million against CAD 8.3 million in Q3 2019, a decrease of CAD 7.2 million. Revenue decreased primarily due to lower performance from all the segments due to lower activities in oil & gas industry.

• The company reported a Gross loss of CAD 0.4 million in Q3 2020 compared to a gross profit of CAD 4.5 million in Q3 2019.

• On the back of lower revenue, higher amortization of intangible assets, coupled with foreign exchange losses, the company posted a net loss of CAD 0.9 million in the reported quarter against a profit of CAD 1.9 million in pcp. 

Risks associated with investment

A slowdown in macroeconomic environment and a volatility in crude oil demand offtake are the key risks for the company as it can have significant decline in demand for equipment and services. 

Valuation Methodology (Illustrative): Price to Cash Flow

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

Stock recommendation

The Company’s operations and financial performance have suffered as COVID-19 and the macroeconomic environment continues to have a significant effect on the oil & gas industry. However, the Company has started to see an opening up of economies around the world. The oil & gas industry has also begun improving gradually. Moreover, we believe that the clean technology industry would remain an integral component of resource development over the medium to long term. The Company is well-positioned, given its focus on top-tier service, quality and technology to meet the client’s emission commitments in the future. Therefore, based on the above rationale and valuation, we recommend a “Speculative Buy” rating at the closing price of CAD 2.14 on March 24, 2021.

1-Year Price Chart (as on March 24, 2021). Source: Refinitiv (Thomson Reuters)

Disclaimer

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