In a June 16 research note, Research Capital Corp. analyst Yue 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 noted that CloudMD, "a hybrid play," is trading below the healthcare technology sector and above the healthcare services sector when it should be trading at a premium to both. "We believe the company should trade at a premium to both sectors due to its much diversified and differentiated product offerings (clinics + digital services + enterprise health solutions)," he stated.
"We believe CloudMD is an undervalued growth name and view its current market valuation as attractive," wrote Ma.
The analyst 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 healthcare providers, life and health insurers, law firms and employers.
This added asset, with a 30% gross margin and positive EBITDA, is forecast to generate about $17 million of revenue per year for CloudMD.
"With this tuck-in addition, CloudMD should have an annualized revenue run rate of $137 million," Ma wrote.
Oncidium's now larger size does not change the overall price CloudMD will pay for the company. That concession remains $30 million in cash and $38 million in shares and a $32 million earn-out. It brings down the deal multiple to 1.3 times price/revenues. The transaction is expected to close by the end of this month.
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.
Factoring in the Oncidium acquisition and the valuation headwinds Canadian healthcare services and tech companies 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$1.72.
[NLINSERT]Disclosure:
1) Doresa Banning compiled this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor. She or members of her household own securities of the following companies mentioned in the article: None. She or members of her household are paid by the following companies mentioned in this article: None.
2) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: None. Click here for important disclosures about sponsor fees.
3) Comments and opinions expressed are those of the specific experts and not of Streetwise Reports or its officers. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
4) The article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the decision to publish an article until three business days after the publication of the article. The foregoing prohibition does not apply to articles that in substance only restate previously published company releases. As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of CloudMD, a company mentioned in this article.
Disclosures from Research Capital Corp., CloudMD Software & Services Inc., Target Change, June 16, 2021
RELEVANT DISCLOSURES APPLICABLE TO COMPANIES UNDER COVERAGE
1. Relevant disclosures required under IIROC Rule 3400 applicable to companies under coverage discussed in this research report are available on our web site at www.researchcapital.ca
2. This Issuer has generated investment banking revenue for Research Capital Corp.
ANALYST CERTIFICATION
I, Yue Ma, certify the views expressed in this report were formed by my review of relevant company data and industry investigation, and accurately reflect my opinion about the investment merits of the securities mentioned in the report. I also certify that my compensation is not related to specific recommendations or views expressed in this report.
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.
Research Capital Corporation, its directors, officers and other employees may, from time to time, have positions in the securities mentioned herein.
