Telus, Loblaw, Well Health take aim at healthcare opportunities

Canadians typically look south of the border for investments in healthcare because the US is home to some of the biggest and most profitable Big Pharma companies.

But those seeking homegrown opportunities might take a closer look at Telus Corp. (TSX: T) and Loblaw Co. Ltd. (TSX:L), two household names whose main businesses lie elsewhere.

Both are using their expertise to fill gaps in Canada’s healthcare net to develop new streams of revenue. A third player to watch is Vancouver’s Well Health Technology Inc. (TSX: WELL), a small cap company with big plans in this space.

Both Telus and Loblaw have been buying outpatient clinics, a largely fragmented market in Canada, where scale can improve profitability. Well Health has quickly become Canada’s largest operator of outpatient clinics.

Many people head to clinics because they can’t find a family physician. Or they want to avoid long wait times at their doctor’s office. Walk-in clinics are staffed by doctors and offer full primary care. Other clinics offer only physiotherapy or chiropractic services. Those in pharmacies come with the option of consultations with pharmacists for the treatment of common ailments.

All three companies are selling software and technical expertise to help doctors and dentists manage their offices. These tools keep track of patient appointments, offer telehealth services, organize patient records, and keep the clinic’s books.

Loblaw is using its Shoppers Drug Mart chain to pull all these things together. As pharmacists get more power to diagnose and treat common ailments, there is more opportunity to capture that business. A recent Globe & Mail article took an in depth look at Loblaw’s aspirations. They include putting small clinics in Shoppers stores with 140 of these mini clinics planned for this year.

Loblaw also owns clinics outside the Shoppers umbrella. In 2022, it paid $845 million for Lifemark Health Group, which has more than 300 clinics. They offer physiotherapy, occupational therapy, massage therapy, and mental health services.

In July, Shoppers teamed up with Truvian Health, a San Diego-based startup that is seeking regulatory approval to conduct on-the-spot blood tests without the need to go to a lab. Shoppers would need Health Canada’s approval to offer the tests and also have funding approval from each provincial health ministry. But the partnership indicates where they see this going.

Telus through its $2.9 billion acquisition of Lifeworks Inc. in 2022 helps companies provide employee and family assistance plans, pension and benefits administration, and retirement planning. It owns 15 outpatient clinics and, in addition to Lifeworks, it provides software and services to hospitals and medical professionals. Its Telus Health unit had revenues of about $1.7 billion in 2023.

Telus recently announced a collaboration with Nova Scotia Health, that province’s healthcare provider. It has built an app that connects Nova Scotia patients to their health records. Telus Health already supports most of Nova Scotia’s clinicians with electronic medical records management. This collaboration builds on that.

Loblaw and Telus share prices have gone in different directions this year. As of the time of writing, Loblaw is up 34% year-to-date while Telus is down 8%. Telus is weighed down by high interest rates, slow growth and weakness at Telus International. Both companies turned in strong performances in their latest quarter. These new businesses contributed.

Loblaw reported net earnings available to common shareholders of $457 million or $1.48 per share for the quarter ended June 15. This was lower than a year ago, but when the settlement of a long- standing class action suit is removed, net earnings rose 6.1%, to $644 million.

Telus showed strong customer growth and improved margins. Revenue rose 0.6% to $5 billion, while earnings per share of $0.15 cents was 7.1% higher.

Well Health Technology started with six clinics in BC in 2018, went public in 2020, and now has 180 outpatient clinics across the country. Its suite of technology-based products includes electronic records management, where it is third behind Telus and Loblaw. It also offers telehealth platforms, practice management software, and an AI-powered virtual assistant.

Well Health generates 25% of its revenue in the US via its Circle Medical subsidiary. Circle Medical owns primary care clinics and also targets specific markets such as gastrointestinal health, mental health, and women’s health.

Well Health’s recent quarter saw record revenues of $243.1 million, 42% higher year-over-year. Earnings before interest, taxes and depreciation (EBITDA) rose 11% to $30.9 million, also a record. The 1.4 million patients who visited its clinics is 38% higher than a year ago, for 5.6 million patient visits on an annualized basis.

In a research note, RBC Capital Markets analyst Douglas Miehm says the company quickly improves the profitability of acquired clinics by modernizing and digitizing their operations. He notes that only 1-to-2% of the Canadian clinic market is consolidated so there is plenty of room to grow.

At the recent price of $4.73, the shares are about 21% higher year-to-date. Mr. Miehm has a price target of $5.50.

This stock has a high p/e ratio of 37, which is not unreasonable given its rapid growth.

This article appeared in the Internet Wealth Builder on Aug. 26, 2024.  For information on how to reprint this article please view this page.