July 11, 2023 (Investorideas.com Newswire) The resulting upfront valuation gain equates to an estimated $0.02 per share, noted an Echelon Capital Markets report.
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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