Viemed Healthcare, Inc.

Viemed Healthcare, Inc. (TSX: VMD) is a provider of in-home medical equipment and post-acute respiratory healthcare services in the United States. Viemed’s service offerings are focused on effective in-home treatment with clinical practitioners providing therapy and counselling to patients in their homes using cutting edge technology.

The company reported that it would disclose its third quarter FY20 results on November 05, 2020.

Investments Rationale:

Lucrative Industry Growth: The healthcare industry is expected to grow at a decent pace, as Medicare facility, it is directly linked with the growing aged population (above 65 years) of the country. As per the study, more than ten thousand people are expected to turn 65 over the next 19 years. We expect the demand for medical equipment would grow in the coming days, as the Government has to cater to the growing population through additional infrastructure. DME Expenditure is expected to grow to USD 74 million in FY23, from existing USD 54.9 million in FY18.

DME Expenditure Estimates (Source: Company website)

Lower Debt Contribution: The group has lower debt contribution in its balance sheet with the Debt/Equity ratio of 0.22x at the end of June quarter of 2020, against the industry average of 0.67x, with a significantly higher interest coverage ratio of 29x. This implies no balance sheet risk for the Company.

Resilient Business model: The business is categorized under essential services as it provides equipment to the medical institutions and hospitals. The company expects expansion through organic growth model, wherein it will serve the existing service areas and would cater to new regions through a cost-efficient launch.

Q2FY20 Financial Highlights:

• Q2FY20 revenue stood at USD 42.854 million, as compared to USD 20.325 million in the previous corresponding period (pcp). The growth was primarily driven by added sales of USD 19.7 million on account of COVID-19 response.
• Gross profit surged to USD 25.927 million, against USD 14.639 million in pcp, driven by higher sales.
• Income from operations stood significantly higher at USD 12.859 million compared to USD 1.664 million in Q2FY19, aided by a higher gross profit and a gain on disposal of property and equipment and a considerably higher other income.
• Net income stood at USD 19.412 million, as compared to USD 1.326 million in pcp.

Q2FY20 Income Statement Highlights (Source: Company Reports)

Risks: Any change in the government regulation for medical service segment would act as a negative catalyst for the business.

Valuation Methodology: Price to Earnings Based (Illustrative)

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

Stock Recommendation: The stock of VMD stood resilient in the recent past and appreciated ~44% so far this year. The company is well-positioned to report sustainable growth and profitability by leveraging its brand awareness, improved operational synergies, and expanding its footprints across the US market. Furthermore, the company has more than 95% untapped market, as only 40,000 beneficiaries have been catered among 1.25 million of potential candidates. We have valued the stock using Price to Earnings based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered peers like InfuSystem Holdings Inc, Protech Home Medical Corp etc. Considering the aforesaid facts, current price movement, we recommend a 'Speculative Buy' rating on the stock at the closing market price of CAD 11.73 on October 16, 2020.

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

NuVista Energy Ltd

NuVista Energy Ltd (TSX: NVA) engages in the exploration, development, and production of oil and natural gas and has products like natural gas, condensate and oil, butane, propane, ethane etc. The company operates in the Western Canadian Sedimentary Basin.

Key Highlights:

• On September 30, 2020, Paramount Resources Ltd. has bought 17,324,000 common shares of NuVista Energy Ltd. at a price of CAD 0.61 per NuVista Share for an aggregate purchase price of CAD 10,567,640. Following the above transaction, Paramount would have a 17.61% stake on NuVista Energy.
• Recently the company confirmed its agreement for Letters of Credit (“LC”) support of CAD 40 million with Export Development Canada.
• The company has re-negotiated its Minimum Volume Commitments (MVC) and would reduce by 20%, which would support the overall cost structure.

Q2FY20 Income Statement Highlights: NVA declared its second-quarter results, wherein the company reported a significant slide in the revenue at CAD 67.399 million, as compared to CAD 143.984 million in the previous corresponding period (pcp). The decline was primarily due to a steep correction in the international crude oil and natural gas prices on account of oversupply scenario. The quarter was marked by an unrealized loss of CAD 49.362 million. The group reported loss before tax of CAD 80.422 million, as compared to a profit of CAD 4.783 million in pcp. Depletion, depreciation, amortization and impairment stood lower at CAD 45.026 million compared to CAD 68.644 million in Q2FY19, partially supported the profitability. The company reported a net loss of CAD 80.422 million, against net earnings of CAD 9.301 million in Q2FY19.

Q2FY20 Income Statement Highlights (Source: Company Reports)

Risks: The business is correlated with the international crude oil prices along with the global demand scenario of the oil and gas. Any volatility in the prices and demand of oil and gas would dampen the overall performance of the company.

Valuation Methodology: EV to EBITDA Based (Illustrative)

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

Stock Recommendation: Due to the fall in the crude oil prices, the stock of NVA corrected ~74% so far this year. The company has taken prudent steps in order to improve financial flexibility by reducing its capital expenditure by ~75% and a significant reduction in G&A expenses and operating costs. Furthermore, the group is targeting to reduce its net debt by CAD 50 million to CAD 60 million during the second half of FY20. The agreement to reduce MVCs with the company’s midstream providers for processing and transportation for 2020-2022 is likely to reduce the pressure on cost, which is a key positive. In light of the current low and volatile oil price environment, NuVista continues to significantly limit capital spending. The group is maintaining liquidity and balance sheet strength during these unprecedented times. Capital spending guidance for 2020 is unchanged, in the range of CAD 165 - CAD175 million, including CAD 15 - CAD25 million during the second half of 2020. Adjusted funds flow at current strip prices is expected in the range of CAD75 - CAD80 million for the second half of 2020, allowing free adjusted funds flow of CAD55 - CAD60 million to be directed towards the reduction of debt. We have valued the stock using EV to EBITDA based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered industry (Energy) median on NTM basis. Hence, considering the aforesaid facts, we recommend a ‘Speculative buy’ rating on the stock at the closing market price of CAD 0.84 on October 16, 2020.

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

Disclaimer

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