In a June 16 research note, Research Capital Corp. analyst Toby Ma reported that CloudMD Software & Services Inc.'s (DOC:TSX.V; DOCRF:OTCQB; 6PH:FSE) acquisition target Oncidium has grown with a recent asset purchase.
"We view this development as positive," Ma wrote.
The analyst also reported that CloudMD is trading below the health care technology sector and above the health care services sector when it should be trading at a premium to both. The company warrants this because it has an array of diversified and differentiated offerings and is expected to grow organically and inorganically.
"We believe CloudMD is an undervalued growth name and view its current market valuation as attractive," wrote Ma.
He discussed the expansion of the company's Oncidium acquisition, CloudMD's largest to date. Oncidium recently got larger when it bought an organization providing independent medical evaluations and health-related services health care providers, life and health insurers, law firms and employers.
This added asset, with a 30% gross margin and positive EBITDA, is forecasted to generate about $17 million ($17M) of revenue per year for CloudMD.
"With this tuck-in addition, CloudMD should have an annualized revenue run rate of $137M," Ma wrote.
Oncidium's now larger size does not affect the price CloudMD will pay for the company. That concession remains $30M in cash and $38M in shares with a $32M earn-out. It does, however, lower the deal multiple to 1.3 times price:revenues. The transaction is expected to close by the end of this month, June.
In other news, Ma noted, CloudMD made some management changes to better support corporate growth. The company promoted Karen Adams to president from chief health innovation officer and moved current president Amit Mathur to the newly created president of U.S. operations position.
To account for the Oncidium acquisition as it is now and for valuation headwinds Canadian health care companies, in both the services and tech sectors, are facing, Research Capital lowered its target price on Buy rated CloudMD to CA$3.30 per share from CA$3.90. The share price now is about CA$1.79.
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