Nova Leap Health Corp. (TSXV:NLH) remains one of our high-conviction ideas in the Canadian small cap healthcare space
SmallCapPower | February 4, 2019: Key secular themes in Home Health remain intact. According to a recent report by RBC Capital Markets, the fundamental growth drivers we outlined in our research initiation report on September 25, 2018 remain intact. More specifically, home health operators are continuing to see interest from hospitals and care facilities looking to partner with established players with expertise in the lowest-cost setting of care. Consolidation activity continues in a highly-fragmented industry, and large players such as LHC Group (NASDAQ:LHCG) are seeing accelerated organic growth in addition to ongoing acquisitions. All this bodes well for Nova Leap Health Corp. (TSXV:NLH), which is at the inflection point of achieving scale economics through its post-acquisition organic growth model.
Targeted acquisition strategy focused on the Northeastern part of the U.S. and Eastern Canada. The New England area and most of the eastern coastline have lower concentrations of home care establishments. The Company focuses on less competitive rural areas with favourable demographics supporting home care requirements.
2018 Review + 2019 Plans
Management anticipates that the Company will acquire up to four home healthcare companies in the current calendar year. Annualized recurring client service hours are projected to increase between 50 to 100% over 2018. At the midpoint of this guidance range, this would imply that consolidated home care service hours are expected to reach 1,015,000.
Acquisition multiples remained consistent (3.0x-5.0x LTM EBITDA; 0.5x-0.7x LTM Sales), and we remain steadfast supporters of management’s disciplined capital allocation strategy. Equity capital markets remained supportive of the Company’s plans as evidenced by several closed rounds of acquisition-related private placements.
Recent Warrants Exercise Provides Anchor for Shares. Within the last 10 days, CEO Christopher Dobbin and CFO Megan Spidle exercised a total of $140,000 worth of warrants at $0.35. Based on yesterday’s closing price, this is an implied upside of 9.3%, which we believe should provide a near-term anchor for the share price.
Nova Leap Health continues to execute on its corporate M&A strategy. The Company is focused on acquiring and organically growing Private Pay Non-Medical and Skilled Home Care Companies. As an accretive M&A-driven pure play in the space, Nova Leap Health offers equity investors a compelling growth story in the next 12-24 months with an attractive risk/reward profile.
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