Well Health Technologies invests in Canadian healthcare

As Canada’s healthcare system struggles to keep up with ever growing demands, three homegrown players continue to find opportunity by filling in gaps in the system.

Telus Corp. (TSX: T) and Loblaw Co. Ltd. (TSX: L) are building on strategies that own clinics and wellness centres, offer telehealth services and sell software to help doctors manage medical records and patients connect with doctors and pharmacists.

The third company, Well Health Technologies Corp. (TSX: WELL) is based in Vancouver. It is a much smaller and more focused player that has gone from a standing start in 2018 to become the largest owner of out-patient clinics in Canada. Like Telus, it sells a software suite for doctors and dentists which helps it integrate its acquisitions. Here are the details.

Well Health Technologies (TSX: WELL) Recent price $5.12.

Background: Well Health started with six clinics in BC in 2018, went public in 2020, and is now the largest owner of primary care clinics in Canada with 220 across the country. Its US subsidiaries also own clinics and target specific markets such as gastrointestinal health, mental health, and women’s health. Some of these are up for sale.

In Canada, Well Health is the third-largest vendor of Electronic Medical Records (EMR) software after Telus and Loblaw. As with Telus, it offers a comprehensive platform for doctors to manage their practices including an AI-powered virtual assistant that can record and summarize patient visits.

Investment summary: Well Health has an active acquisition strategy, adding seven clinics so far this year. It integrates them into its software platform, improving profitability and efficiency.

In a research note, RBC Capital Markets analyst Douglas Miehm estimates that only 1–2% of the Canadian clinic market is consolidated, leaving a long list of potential candidates. He says the company has been proven to significantly improve pre-tax earnings of acquired clinics within 24 months and has a brand recognition that resonates with GPs.

Well Health plans to spin off its WellStar subsidiary as a stand-alone company by the end of this year. WellStar has a software development focus including records management and AI-powered clinical tools.

Late last year, Well Health’s US subsidiary, Circle Medical, came under investigation by regulators over its billing practices. It led to a reporting delay and loss of $1.1 million in its US subsidiary for the 2023 year.

While the sum was not substantial, it shook faith in the company and sent the shares sharply lower. Well Health has fixed the problem but is looking at options for Circle Medical, which could mean a sale, restructuring, or even winding down operations.

It expects some operations to be sold by year end with the proceeds being invested in Canadian expansion.

Financials: Between 2019 and 2024, revenue grew from $37 million to $958 million. Net income has been erratic, but operating income has moved steadily higher. In its latest quarter, revenue of $356.7 million was up 57% year-over-year. Adjusted EBITDA of $49.7 million was 231% higher.

Share performance: The stock is down 25% year-to-date as the overhang from the US accounting problems has soured investor sentiment.

Mr. Miehm’s 12-month price target is $7, which is 30% higher than the current price. A Morningstar Research analysis puts fair value at $6.05, some 23% higher than the current price.

Conclusion: Well Health seems poised for growth as it applies economies of scale to its acquisitions of clinics in Canada’s fragmented market.

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