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]
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Disclosures from Research Capital Corp., CloudMD Software & Services Inc., Target Change, June 16, 2021
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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.
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