Home Healthcare Takeover Candidate in the Age of COVID-19

Canaccord Genuity analyst sees Protech Home Medical Corp. (TSXV:PTQ) as a potential acquisition target

Capital Ideas Media | September 1, 2020 | SmallCapPower: On the surface at least, Protech Home Medical Corp. (TSXV:PTQ) appears to be the perfect stock to own as COVID-19 infections continue to surge in the United States.

(Originally published on Capital Ideas Media on July 14, 2020)

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[Editor’s Note: Shares of Protech Home Medical have appreciated 20% since Capital Ideas wrote about the company about six weeks ago.]

The Company offers a range of services to patients in need of in-home monitoring and chronic disease management, including respiratory solutions for clients in the United States, and is poised to benefit from an aging North American population.

Protech’s most recently reported quarter (Q2 2020) saw revenue rise 16% year over year to $24.1 million (68% of its revenue is recurring), along with a 30% year-over-year increase in Adjusted EBITDA, while swinging to a quarterly profit of $1.6 million from a loss of $0.5 million a year earlier.

The Company raised $31.8 million in June and is now sitting on more than $41 million in cash, which it intends to use for future acquisitions in a market that it calls “highly fragmented” with more than 6,000 medical equipment providers.

As Protech Home Medical searches for more companies to buy, Canaccord Genuity analyst Tania Gonsalves sees PTQ itself as a potential takeover target.

“Protech Home Medical is a U.S. distributor of durable medical equipment (DME), namely non-invasive ventilation (NIV), oxygen concentrators and positive airway pressure (PAP) machines to manage respiratory disorders at home,” she wrote.

“Over the past six years, it has acquired $75 million in sales (net), which together with organic growth has brought run-rate revenue to $100 million today. Management targets doubling sales to $200 million-plus and expanding EBITDA margin from 20 per cent to 25 per cent in 3-5 years. We believe this is achievable given PTQ’s net cash of $14 million (post-$32 million equity offering in June), which alongside FCF we estimate is sufficient to acquire $12 million in sales per year.”

Ms. Gonsalves currently has a “Buy” rating on the stock with a $2 per share target price, suggesting nearly 100% upside from the current market price [it was $1.04 per share at the time of writing].

The Canaccord Genuity analyst added that should the stock continue to trade at less than 5 times forward EBITDA versus peers at more than 10 times, “we believe it will catch the eye of larger competitors, offering an alternative exit opportunity.”

Shares of Protech Home Medical have climbed 76% during the past year to its current price of $1.25.

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