Real Matters Inc

Real Matters Inc (TSX: REAL) is a Canadian network management services provider for the mortgage lending and insurance industries. The Company helps its clients make intelligent decisions about real estate by leveraging technology to deliver better quality, transparency and efficiency.

Key highlights

• Gaining market share: The company continued to grow its market share, launched new lenders and got benefited from a more robust market on both sides of the border in the third quarter. Its U.S. Appraisal origination revenues were up 20.6% compared with an estimated 17.1% increase in the addressable market.

• The management set performance goals for 2025: On the back of onboarding the new customers and increasing market share with its existing clients, the management raised the bar by setting the new targets through the end of fiscal 2025. Here, they expect to achieve a net revenue margin between 26-28% and an Adjusted EBITDA margin between 65-70% for the U.S Appraisal segment, while for the U.S Title segment, the net revenue margin would be in a range of 60-65% along with Adjusted EBITDA margin between 50-55%. Furthermore, the group aims to convert 70-75% of Adjusted EBITDA into free cash flows between fiscal 2021 through the end of fiscal 2025, which is a key positive.

• Lower performance from U.S Title segment: Revenues from the U.S. Title segment declined as a result of a continued shift in the centralized title client base and the rationalization of its diversified title business. Revenues attributable to centralized title services declined USD 7.0 million to USD 24.6 million, and the average revenue per transaction declined approximately 1% due to geographic mix.
  

Financial overview of Q3 2021 (in thousands of U.S. dollars)

Source: Company

• In Q3 2021, the company posted revenue of USD 129.3 million against USD 118.0 million in the previous corresponding period. The rise in revenues was mainly due to higher revenues from U.S. Appraisal segment due to higher market volumes, net market share gains and new client additions.
• Transaction cost as % to revenue increased to 70.15% at USD 90.7 million in Q3 2021 compared to 62.80% at USD 74.1 million in the previous corresponding period. The cost increased mainly due to higher volumes serviced in U.S. Appraisal and Canadian segments.
• On the back higher transaction cost and higher operating expenses, the company clocked an income before income tax of USD 7.2 million compared to USD 10.4 million in pcp.
• The company’s net income in the reported period stood at USD 5.2 million against USD 6.2 million, partially benefitted by lower income tax expense.

Risks associated with investment

Residential mortgage volume in North America is a crucial driver for the Company's financial performance, and cyclical trends and seasonality influence this, which could impact the Company’s operations and cash flows.

Stock recommendation

In Q3 2021, the company’s consolidated revenues increased 9.6% to USD 129.4 million. It posted record-breaking revenues and Net Revenue under the U.S. Appraisal and Canadian segments, which was offset in part by a decline in our U.S. Title segment which dragged the company’s performance on the lower side. Furthermore, it registered higher market volumes and new client additions in its U.S. Appraisal segment, which is praiseworthy. Additionally, the group aim to convert 70-75% of Adjusted EBITDA into free cash flows between fiscal 2021 through the end of fiscal 2025, which is a key positive. On the valuation front, the stock is available at forward EV to Sales multiple of 4.4x against the industry median of 5.5x.  Therefore, based on the above rationale, we recommend "Hold" rating on the stock at the closing price of CAD 12.35 on August 05, 2021.

One-Year Technical Price Chart (as on August 05, 2021). Source: REFINITIV, Analysis by Kalkine Group

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 for Q3 2021:The management is confident that its core business would generate net revenues of USD26.8 - USD27.8 million, with extra revenues of USD0.5 – USD0.8 million from sales and support connected to the COVID-19 pandemic. As a result, overall sales for Q3 2021 are expected to range between USD27.3 to USD28.6 million.
  

• Increase in ventilator patient count: The Company grew its ventilator patient count by 5% to 8,103, over 7,733 ventilator patient count on March 31, 2021. The increase in ventilator patient count is a healthy sign from the company’s perspective.

Source: Company

• Healthy balance sheet: In Q2 2021, the Company had a cash surplus of USD 31.2 million and a total working capital balance of USD 28.7 million, compared to USD 24.2 million on December 31, 2020. In addition, the company reduced its total long-term debt from USD 6.6 million on December 31, 2020, to USD 5.7 million on June 30, 2021.

• Industry Beating Margins: The resilient business of the company assisted in outperforming the industry median on many fronts, portraying the efficacy of the company. The matrix below gives a glimpse of this.

Financial overview of Q2 2021 (Expressed in thousands of U.S.D)

Source: Company

• In Q2 2021, the company posted lower revenue at USD 27.3 million compared to USD 42.8 million in the previous corresponding period. The decline in revenue was primarily due to lower performance from the COVID-19 response sales and services segment where the revenue dropped 94.2% to USD 1.1 million V/s USD 19.7 million in pcp.
• In Q2 2021, the operating income stood at USD 2.6 million against USD 12.8 million in pcp. The decrease in operating income was primarily due to lower gross profit and lower other income.
• Net income registered by the Company in the reported period, totaled USD 1.5 million, compared to USD 19.4 million in pcp, the decline in net income was primarily due to lower revenue and above stated reasons. 

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. 

Stock recommendation

Despite the problems it faced in March, the company grew its ventilator patient count by 5% to 8,103 allowing it to increase its core market, which is a key positive. As the group is continuously expanding geographically and further penetrating existing territories, it expects growth in its active ventilator patient base and ventilator rental revenue, as well as in the other growing respiratory offerings. Though in the short term, the management anticipate growth to occur at a slightly slower rate than historically realized. Furthermore, the management anticipates net sales of USD27.3 - USD28.6 million in Q3 2021. On the valuation front, the stock is available at forward EV to EBITDA multiple of 8.1x against the industry median of 11x. Therefore, based on the above rationale, we recommend a "Hold" rating on the stock at the closing price of CAD 8.33 on August 05, 2021.

One-Year Technical Price Chart (as on August 05, 2021). Source: Kalkine, Analysis by Kalkine Group

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

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.