CloudMD Software & Services Inc. (DOC:TSX.V; DOCRF:OTCQB; 6PH:FSE) divested a set of noncore assets for about US$6.3 million (US$6.3M), or CA$8.3M, reported Echelon Capital Markets analyst Rob Goff in a July 5 research note.
"We remain bullish toward a more focused and efficient CloudMD emerging as it realizes quarterly revenues pushing toward CA$30M on our baseline forecasts along with EBITDA-positive results by year-end while 2024 points to a free cash flow-positive turn," Goff wrote.
Material potential return
Accordingly, Echelon has a target price on the healthcare technology firm of CA$0.40 per share. In comparison, CloudMD's current share price is about CA$0.15 per share. Thus, the potential return for investors is significant, at 167%.
CloudMD is rated Speculative Buy.
Also, Goff wrote, the company currently is trading at a discount to its Canadian digital health peers. As CloudMD nears EBITDA positivity, "we believe it will hold considerable potential for a significant valuation rerating, either organically or via takeout."
Upside of the deal
CloudMD sold three assets to N. Harris Computer Corp., a Constellation Software subsidiary, Goff explained. These were its nonproprietary U.S.-based Electronic Medical Records, Practice Management and Revenue Cycle Management. The latter would have needed a much larger salesforce to grow the business, Goff noted.
The transaction afforded CloudMD three notable benefits, wrote Goff. It yielded additional cash, helped streamline business and boosted CloudMD's valuation by an estimated CA$0.02 per share.
The assets generated 6–7% of CloudMD's Q1/23 revenue of about CA$1.7M, suggesting an enterprise value (EV):revenue multiple of about 1.2 times. This is "a considerable premium," added Goff, to the company's current EV:revenue multiple of 0.4 times.
To reflect the asset sale, Echelon updated its model on CloudMD, revising Q2/23, Q3/23, Q4/23 and full-year 2023 revenue, gross profit and EBITDA forecasts. Echelon now expects the company to end the year with about CA$18.1M in cash.
Outlook remains positive
CloudMD's remaining assets are its Health and Wellness Services and its remote patient monitoring platform within the Health and Productivity Solutions segment.
Goff wrote that Echelon's thesis for CloudMD remains unchanged. Echelon expects it to achieve and sustain double-digit, baseline organic growth in H2/23. Even more, given CloudMD's existing pipeline, quantified at CA$55M-plus in annual recurring revenues, the company could possibly increase scale and exceed Echelon's forecasts. Significant growth potential lies in CloudMD's remote patient offering, noted Goff.
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Disclosures for Echelon Capital Markets, CloudMD Software & Services Inc., July 5, 2023
Echelon Wealth Partners Inc. is a member of IIROC and CIPF. The documents on this website have been prepared for the viewer only as an example of strategy consistent with our recommendations; it is not an offer to buy or sell or a solicitation of an offer to buy or sell any security or instrument or to participate in any particular investing strategy. Any opinions or recommendations expressed herein do not necessarily reflect those of Echelon Wealth Partners Inc. Echelon Wealth Partners Inc. cannot accept any trading instructions via e-mail as the timely receipt of e-mail messages, or their integrity over the Internet, cannot be guaranteed. Dividend yields change as stock prices change, and companies may change or cancel dividend payments in the future. All securities involve varying amounts of risk, and their values will fluctuate, and the fluctuation of foreign currency exchange rates will also impact your investment returns if measured in Canadian Dollars. Past performance does not guarantee future returns, investments may increase or decrease in value and you may lose money. Data from various sources were used in the preparation of these documents; the information is believed but in no way warranted to be reliable, accurate and appropriate. Echelon Wealth Partners Inc. employees may buy and sell shares of the companies that are recommended for their own accounts and for the accounts of other clients.
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U.S. Disclosures: This research report was prepared by Echelon Wealth Partners Inc., a member of the Investment Industry Regulatory Organization of Canada and the Canadian Investor Protection Fund. This report does not constitute an offer to sell or the solicitation of an offer to buy any of the securities discussed herein. Echelon Wealth Partners Inc. is not registered as a broker-dealer in the United States and is not be subject to U.S. rules regarding the preparation of research reports and the independence of research analysts.
For U.S. persons only: This research report is a product of Echelon Wealth Partners Inc, under Marco Polo Securities 15a-6 chaperone service, which is the employer of the research analyst(s) who has prepared the research report. The research analyst(s) preparing the research report is/are resident outside the United States (U.S.) and are not associated persons of any U.S. regulated broker-dealer and therefore the analyst(s) is/are not subject to supervision by a U.S. broker-dealer, and is/are not required to satisfy the regulatory licensing requirements of FINRA or required to otherwise comply with U.S. rules or regulations regarding, among other things, communications with a subject company, public appearances and trading securities held by a research analyst account.
ANALYST CERTIFICATION
Company: CloudMD Software & Services Inc. | DOC:TSXV
I, Rob Goff, hereby certify that the views expressed in this report accurately reflect my personal views about the subject securities or issuers. I also certify that I have not, am not, and will not receive, directly or indirectly, compensation in exchange for expressing the specific recommendations or views in this report.
IMPORTANT DISCLOSURES
Is this an issuer related or industry related publication? Issuer
Does the Analyst or any member of the Analyst’s household have a financial interest in the securities of the subject issuer? No
If Yes: 1) Is it a long or short position? No position; and, 2) What type of security is it? None
The name of any partner, director, officer, employee or agent of the Dealer Member who is an officer, director or employee of the issuer, or who serves in any advisory capacity to the issuer. No
Does Echelon Wealth Partners Inc. or the Analyst have any actual material conflicts of interest with the issuer? No
Does Echelon Wealth Partners Inc. and/or one or more entities affiliated with Echelon Wealth Partners Inc. beneficially own common shares (or any other class of common equity securities) of this issuer which constitutes more than 1% of the presently issued and outstanding shares of the issuer? No
During the last 12 months, has Echelon Wealth Partners Inc. provided financial advice to and/or, either on its own or as a syndicate member, participated in a public offering, or private placement of securities of this issuer? No
During the last 12 months, has Echelon Wealth Partners Inc. received compensation for having provided investment banking or related services to this Issuer? No
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Has the Analyst received any compensation from the subject company in the past 12 months? No
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