Centric Health Corporation (TSX:CHH) is uniquely positioned to meet growing healthcare needs in key markets, address capacity bottlenecks and reduce wait times
SmallCapPower | June 5, 2018: Centric Health Corporation (TSX:CHH) provides healthcare services to patients and customers in Canada. Established in 2001, Centric Health is headquartered in Toronto and operates through three core areas: Specialty Pharmacy, Orthotics, as well as Surgical and Medical Centres. Centric Health is uniquely positioned to meet growing healthcare needs in key markets, address capacity bottlenecks and reduce wait times.
Centric Health Corporation trades at a market capitalization of $62.96 million supporting an EV/Revenue multiple of 1.07.
Investment Thesis
- Quality services backed by technology
- Focus on strategic growth
- Collaborations with other firms
Quality services backed by technology
Centric Health Corporation offers health services to patients and customers with a proven track record of the highest service and ethical standards and delivering a superior quality of care. The Company complements the Canadian healthcare system through large, national networks with considerable capacity and operating leverage. Centric Health focuses on providing healthcare solutions to seniors, patients and clients in order to achieve and maintain optimum health. Amid the aging population of Canada, Centric Health Corporation is trying to address the challenges in Canadian healthcare system of long wait times and spiraling costs by applying innovative and cost-effective solutions through reinvestment in leading-edge technology and infrastructure.
Focus on strategic growth
In order to expand its business, Centric Health leverages existing seniors, patients, and clients to obtain new contracts. For attracting new customers, the Company is expanding the scope of services and maximizing its capacity utilization at existing facilities. Centric Health is relying on innovative technology and economies of scale to drive efficiencies by optimizing labour costs. Cost-reduction measures are deployed to ensure a lean shared service model and, thereby, enhance the overall profitability.
Centric Health doesn’t purely rely on organic growth to drive top-line performance but also on strategic acquisitions that will strengthen its value proposition and expand the business operations. Potential opportunities would involve acquiring businesses with strong margins and cash flows, with low capex requirements.
Centric Health has guided to a debt/adjusted EBITDA ratio of ~4x over the medium term. Also, improving cash flows through effective utilization of working capital management will be a key point in Company’s overall growth strategy.
Collaborations with other firms
Centric Health has entered into a collaborative relationship with Think Research Corporation for digitizing Specialty Pharmacy operations. This will transform the Company’s medication review program into a digital format, which will eliminate the paperwork duplication in the pharmacy clinical review process. Therefore, it is expected to result in cost savings & labour efficiencies and maximize the safety of seniors through data-analytics capabilities.
Furthermore, Centric Health is funding AceAge Inc for the production of the first batch of its home-based automated drug delivery appliance, Karie, which is designed to solve the medication compliance issues of individuals taking multiple medications, particularly seniors living independently. As of now, the Company’s stake in AceAge totals 17.5%. Following an additional investment of $0.5 million in AceAge, Centric Health would increase its stake to 22.5%.
Outlook and Valuation
In terms of valuation, Centric Health Corporation trades at a market capitalization of $62.96 million with an EV/Revenue multiple of 1.07. At current levels, the Company offers investors a favorable risk/reward profile owing to its product portfolio and focused growth initiatives.
Disclosure: Neither the author nor his family own shares in the company mentioned above.
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