Analyst: Health Care Services/Tech Firm’s ‘Biggest Transaction Gets Even Bigger’

Source: Streetwise Reports   06/23/2021

How the acquisition has grown and its effects on CloudMD Software & Services are addressed in a Research Capital Corp. report.

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.

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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.