CloudMD Software & Services Inc.

CloudMD Software & Services Inc. (TSXV: DOC) is digitizing the delivery of healthcare by providing patients access to all points of their care from their phone, tablet or desktop computer.

Key Updates:

• Positive Technical Indicators: The stock of DOC closed above the long-term support levels of 100-days, 150-days and 200-days simple moving average (SMA), indicating a bullish price trend in the stock. The stock gained momentum and appreciated ~160% in the last six months.               

(Source: Refinitiv, Thomson Reuters)

• Impressive Outlook: The company’s product caters to the healthcare industry and provides digital technology for the healthcare segments, which would provide both better access to care and better health outcomes. The future prospects of the company would be supported by the increased demands for hybrid clinics coupled with pharmacy partnerships and enterprise partnerships. Moreover, the company’s offerings witnessed strong momentum in the recent past, driven by the growing adoption of the consumer-facing app, which is available in British Columbia and Ontario. Through a number of accretive acquisitions of leading healthcare solutions during the last few months, the opportunities remain bright and are expected to remain as one of the future growth-drivers.

• Acquisition of IDYA4 Technology: On February 22, 2021, the company acquired IDYA4, a leading US-based health technology company, which offers data interoperability and cybersecurity. The company generates ~USD 4.4 million revenue on an annualized basis, while its EBITDA margin stood at more than 31% over the 12-month period ending December 31, 2020. The acquisition cost has been determined at USD 14.8 million. 

Q3FY20 Financial Highlights:

• DOC announced its quarterly results, wherein the company posted revenue of CAD 3.358 million, stood significantly higher than CAD 2.165 million in the previous corresponding period (pcp).
• Operating loss stood at CAD 2.679 million, as compared to CAD 0.753 million in the previous corresponding period (pcp). The decline was due to a significantly higher marketing costs, an increase in office and administration expenses, and a surge in wages and salaries costs.
• The group reported a net loss of CAD 2.724 million, as compared to a loss of CAD 0.809 million in pcp.
• Cash and cash equivalents were recorded at CAD 33.949 million, while total assets stood at CAD 55.329 million.

Q3FY20 Income Statement Highlights (Source: Company Reports)

Risks: The business-model depends upon consumer preferences, and a change in preferences might dampen the overall demand dynamics.

Valuation Methodology (Illustrative): EV to Sales based

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

Stock Recommendation:

The stock of DOC soared handsomely in the last one year, supported by the growing traction for digital healthcare products. Moreover, with the recent acquisition of IDYA4, we expect improved growth prospects, which would further support the company’s financials. Furthermore, DOC made a recent acquisition of VisionPros, a vertically integrated digital eyewear platform which has a customer-base of more than one million across North America. The group delivers contact lenses and glasses at a very convenient price point.  Moreover, the above business-model of VisionPros is scalable in nature and is witnessing strong demand, which is a key positive. 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 industry (Technology) mean on an NTM basis. Considering the aforesaid facts, we recommend a ‘Speculative Buy’ rating on the stock at the closing market price of CAD 2.65 on February 23, 2021.

DOC Daily Technical Chart (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 

• Strategic initiatives: Recently, the company announced strategic initiatives that would better position them to capitalize on the rapidly changing ESG landscape, while aligning the business with the company’s three growth strategies: increase clean combustion and power generation market share; diversification of revenue streams into new industries and geographical markets and accelerate development and commercialization of new products and services. 

• Process redesign and technology implementation: The management believes that there is a significant opportunity to strengthen their organization through process redesign and technology implementation, which would drive more robust top-line growth and diversification.

• Investments: The company would be investing in the sales & marketing, product development and commercialization initiatives, through which they expect significant sales growth, setting the stage for 2022 and into future years. These investments would be initially funded with a portion of the company’s significant existing cash reserves.

• Decent Liquidity: The Company continues to be in a decent financial position at the end of Q3 2020, with cash increased to CAD 17.0 million from CAD 13.5 million on December 31, 2019, and CAD 15.2 million at June 30, 2020. 

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. Revenue from incinerator rentals decreased from CAD 4.0 million in Q3 2019 to CAD 0.6 million in Q3 2020. Incinerator equipment sales decreased from CAD 3.6 million in Q3 2019 to CAD 0.3 million in Q3 2020. Incinerator service revenue decreased from CAD 0.7 million in Q3 2019 to CAD 0.2 million in Q3 2020.

• The company reported a Gross loss of CAD 0.4 million in Q32020 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

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

Stock recommendation

Despite the short-term challenges witnessed by the Company due to COVID-19 led disturbance, we believe that the clean technology industry would remain an integral component of resource development over the medium to long term and the Company is well-positioned, given its focus on top-tier service, quality and technology to meet their client’s emission commitments in the future. Furthermore, the management sees a significant opportunity to strengthen its organization through process redesign and technology implementation, which would drive more robust top-line growth and diversification, which is a key positive. On the valuation front, the stock is available at forward EV/EBITDA multiple of 11.1x against the Industry average of 16.9x. Hence, considering the aforesaid rationale, we recommend a “Speculative Buy” rating on the stock at the closing price of CAD 2.42 on February 23, 2021.

Source: Refinitiv (Thomson Reuters)

Disclaimer

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