In an April 8 research note, analyst Yue Ma reported that in light of CloudMD Software & Services Inc. (DOC:TSX.V; DOCRF:OTCQB; 6PH:FSE) agreeing to acquire Oncidium, Research Capital Corp. increased its financial forecasts and its target price on CloudMD to CA$3.90 per share from CA$3.60. CloudMD's stock is trading now at about CA$2.01 per share.
Ma described Oncidium as a healthcare company based in Ontario, Canada, that helps employers optimize employee disability management by providing virtual occupational health services, medical assessments and absentee oversight. Oncidium "has built a difficult-to-replicate ecosystem of more than 1,000 health care practitioners and over 500 loyal clients (many are Fortune 500 companies) employing over 2 million employees across the country," the analyst wrote.
"This transformative deal not only is financially accretive to CloudMD but also provides the company with significant cross-selling opportunities via the 2 million employees, expands its national footprint and product offerings as well as increases its medical capacity," Ma stated.
The analyst indicated that for its acquisition of Oncidium, CloudMD will pay CA$68 million upfront, CA$30 million of it in cash, the remainder in shares (at CA$2.30 per share). The company also will pay, in cash or shares, a CA$32 million performance-based earnout over three years. The transaction is expected to close in June.
"CloudMD noted the total transaction value ($100 million) carried a valuation of 1.5x sales and 8.1x adjusted EBITDA, implying Oncidium is estimated to generate $66.7 million in revenues and $12.3 million in adjusted EBITDA three years after the closing," Ma wrote.
In that same time frame, CloudMD's management expects Oncidium to achieve a 30% compound annual growth rate in revenue, Ma relayed. Regarding Oncidium's impact on CloudMD revenue, CloudMD projects that the acquisition will increase the annualized revenue run rate of its enterprise health solution (EHS) division to CA$53 million, with a 40% gross margin and a 10% adjusted EBITDA margin. CloudMD also anticipates the deal will boost its total annualized revenue run rate to CA$122 million from CA$85 million.
It looks as if Oncidium is on track to meet those metrics, Ma noted. Annualization of Oncidium's past four months' revenue amounts to CA$40 million, which is higher than the $37 million of revenue the company generated in the last 12 months.
As far as the outlook for CloudMD, Ma indicated that its 14 acquisitions to date have "laid a solid foundation for the company to grow organically in the long-term run."
Research Capital has a Buy rating on CloudMD.[NLINSERT]
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Disclosures from Research Capital Corp., CloudMD Software & Services Inc., Target Change, April 8, 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.
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 analystís personal views and (ii) no part of the research analystís compensation was or will be directly or indirectly related to the specific conclusions or recommendations expressed in this research report.
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