In a Sept. 28 research note, analyst Yue Ma reported that Mackie Research Capital Corp. is initiating coverage on CloudMD Software & Services Inc. (DOC:TSX.V; DOCRF:OTCQB; 6PH:FSE) with a Buy rating and a CA$2.80 per share target price. In comparison, the stock is currently trading at about CA$2.08 per share.
CloudMD is a "growth at a reasonable price play" with "ample room for valuation upside," Ma highlighted. He gave the reasons why the healthcare firm makes a compelling investment.
For one, it is in a space that is quickly growing: telemedicine. CloudMD provides virtual medical care along with in-person care from its five clinics in British Columbia and owns an array of healthcare technology products it offers on a software-as-a-service (SAAS) basis. With the latter, it serves 376 clinics, 3,000 doctors and more than 3 million patients throughout Canada. Furthermore, CloudMD continually works to garner new users of its products.
"The transition to telemedicine, as well as, the growing SAAS-based business, is expected to turn CloudMD cash flow positive, and its margins should improve," noted Ma.
Two, the Vancouver-headquartered company is a heavy acquirer, with three such transactions in progress and a goal of purchasing at least one cash flow positive clinic every quarter on average going forward. This should generate "accretive $2–3 million quarterly revenues," Ma indicated.
Three, CloudMD is expanding into the U.S., which has an "enormous primary care market," wrote Ma. For starters, it is about to close on the acquisition of a chronic care clinic in Mississippi, which it plans to then expand into a network that serves the Southeast region.
Four, the company's entire management team brings years of experience to CloudMD. For instance, CEO Dr. Ezra Assam founded HealthVue in 2005 and expanded it to encompass four clinics before CloudMD acquired it for $4 million in 2018. Chairman Mark Kohler, under his leadership as chairman of QHR, the electronic medical records vendor became the third largest in Canada and was acquired for $170 million by Loblaw in 2016.
Potential catalysts expected in 2020 include new acquisitions, closings of already made deals and, in November, Q3 earnings, the analyst noted.
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Disclosures from Mackie Research, CloudMD Software and Services Inc., Initiating Coverage, September 28, 2020
RELEVANT DISCLOSURES APPLICABLE TO COMPANIES UNDER COVERAGE
1. This Issuer has generated investment banking revenue for MRCC.
2. Relevant disclosures required under Rule 3400 applicable to companies under coverage discussed in this research report are available on our web site at www.mackieresearch.com.
ANALYST CERTIFICATION
Each analyst of Mackie Research Capital Corporation whose name appears in this report hereby certifies that (i) the recommendations and opinions expressed in this research report accurately reflect the analyst's personal views and (ii) no part of the research analyst's compensation was or will be directly or indirectly related to the specific conclusions or recommendations expressed in this research report.
