Protech Home Medical Corp

Protech Home Medical Corp (TSXV: PTQ) is the United States-headquartered healthcare service company. The company provides in-home monitoring and disease management services, which includes end-to-end respiratory solutions for patients in the United States.

Recently, the company confirmed the acquisition of Health Technology Resources (HTR) with a total cash consideration of ~CAD 5.4 million. HTR is a leader in the respiratory home care services industry in the state of Illinois and presents Protech with the opportunity to expand into the Chicago area.

Q3FY20 Financial Highlights: PTQ announced its quarterly results wherein the company reported revenue of CAD 25.9 million, as compared to CAD 20.2 million in Q3FY19 due to decent organic growth. Furthermore, the company reported a 19% y-o-y increase in the customer base. The quarter was marked by strong demand from the respiratory equipment, such as Ventilators, and Oxygen Concentrators, CPAP resupply and other supplies business. The company reported a higher gross profit of CAD 18.4 million, as compared to CAD 14.1 million in the previous corresponding quarter while gross margin improved marginally to 71%, as compared to 70% in the previous corresponding period (pcp), driven by continued margin enhancement efforts, including patient intake and distribution optimization. EBITDA, during the period, stood at CAD 5.451 million, as compared to a loss of CAD 7.268 million in pcp. The company reported a net loss from the operations at CAD 3.731 million, which was significantly lower from a net loss of CAD 12.564 million in pcp.

Q3FY20 Income Statement Snapshot ( Source: Company Reports)

Risks: Sharp reduction in COVID-19 cases could have an impact on the group's performance on the company's performance in near-term. Any disruption in the group's supply chain due to growing COVID-19 cases could also have a weigh on the group's financial performance.

Valuation Methodology: EV to Sales Based (Illustrative)

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

Stock Recommendation: The stock appreciated ~31% so far this year. The company is focusing on enhancing its distribution across the US states by the addition of experienced sales personnel, which is a key positive and augurs well for revenue growth. Further, the recent acquisition of Health Technology Resources would enhance the company’s business prospects in new markets. During the quarter, the company’s supply chain for critical equipment witnessed strong growth while the Management confirmed that it has abrupt stock to weather the rising demand across several segments. Protech qualified as an essential business pursuant to the policies of the US government and has operated at full efficiencies during the COVID-19 pandemic serving over 85,000 active patients with exceptional service while managing increased demand from over 17,000 referring physicians. The company’s supply chain for critical equipment has remained strong, and the company has ensured its inventory levels are aligned with the increased demand for certain respiratory related products. The stock closed above the 200-days simple moving average of CAD 0.97, indicating a bullish pattern. We have valued the stock using EV to Sales based relative valuation method and have arrived at a target upside of low double-digit (in percentage terms). We have considered Hamilton Thorne Ltd, Greenbrook TMS Inc and CareRx Corp etc., as a peer group. Considering the aforesaid facts, current price levels, we recommend a ‘Speculative Buy’ rating on the stock at the closing market price of CAD 1.27 on September 1, 2020.

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

People Corp

People Corp (TSXV: PEO) is a Canada based provider of group benefits, group retirement and human resource services. It offers various employee services including career transition and career management, employee benefits consulting, group retirement solutions, integrated solutions, student benefits, recruitment, third party administration, wellness, and human resource (HR) consulting services.

Q3FY20 Financial Highlights: PEO declared its third quarter results, wherein the company posted revenue of CAD 53.237 million as compared to CAD 42.427 million in the previous corresponding period (pcp). The increase was driven by strong organic growth of 8.2% on y-o-y basis coupled with growth from launching new services, gaining new clients, increasing product and service penetration with existing clients and natural inflationary factors. Adjusted EBITDA stood higher at CAD 16.112 million, as compared to CAD 9.509 million in pcp, primarily driven by contribution from acquired operations and organic revenue growth combined with incremental general and administrative cost savings aided by declining discretionary spending. The group reported a net profit of CAD 2.838 million, against a net loss of CAD 0.644 million in the previous corresponding quarter, primarily due to higher adjusted EBITDA, partially offset by higher depreciation and amortization expense and increased income taxes.

Q2FY20 Financial Highlights (Source: Company Reports)

Risks: The Human Resource sector is highly competitive in nature and the company might witness pricing pressure which might affect the company’s top-line and cash flow.

Valuation Methodology: Price to CF Based (Illustrative)

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

Stock Recommendation: The stock gained ~9% in the last one year, amidst a major jolt in the equity market. In order to enhance the clients' satisfaction, the company expanded and enhanced the Client Excellence team, which augurs well for higher organic growth in the coming days. The company further introduced virtual health solutions, including healthcare platform, which provides members and their families with direct access to medical consultants, which is an added feature and a key positive. The company is well-funded and is able to execute on its long-term growth strategy, and has a strong financial position, which augurs well for improved business prospects. The company has ample liquidity and can withstand the current downturn, which is commendable. The company had cash balances of CAD 35.3 million, and in addition to its cash resources, the company maintains a credit facility that totals CAD 125.0 million of credit capacity, with an option to increase the credit facility by an additional CAD 50.0 million. Investors should note that the stock closed above the 200-days simple moving average (SMA) of CAD 9.30, indicating a bullish trend. We have valued the stock using EV to Sales based relative valuation method and have arrived at a target upside of lower single digit (in percentage terms). For the said purposes, we have considered peer average like goeasy Ltd, Fiera Capital Corp, Alaris Royalty 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 10.02 on September 1, 2020.

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

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.