WELL Health Technologies Brushes Off Shorts

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On Friday April 23rd, WELL Health Technologies Corp (TSE:WELL) (OTCMKTS:WLYYF) was the subject of a short seller attack conducted by an anonymous author. The report falsely claimed WELL has regularly overpaid for acquisitions including its most recent US$372.9M deal with CRH Medical which based on audited financials by KPMG recently reported quarterly revenues of over US$36M USD and EBITDA of over US$16M. Analysts believe WELL’s combined revenues are now approaching $300M/year generating more than $50M in free cashflow before leverage and tax costs. The market quickly brushed off this report as WELL shares slid less than 1% and rose 10.6% the following trading day.

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Analysts immediately came to the defense of WELL, marking this a total failure for shorts. David Newman, an analyst at Desjardins quickly pointed out the associated disclaimer that came with this short report. Indicating that this firm and its clients/and or investors had a direct or indirect short position on the stock.

“This is one of those ‘short and distort’ type reports which is not worth dignifying with a response in terms of rebutting it but we’ve had enormous feedback from our shareholders, analysts and investors commenting on their support for the company and the fact that they see this report for what it is, a misleading report designed to manipulate the market for the benefit of people who have a short interest on the company” said WELL CEO Hamed Shahbazi in a recent interview responding to these claims.

Failed Short Attempt

In a Monday update to clients, Desjardins analyst David Newman gave a point-by-point response to this report. Newman reiterated his “Buy” rating and $10.50 per share target price for WELL, which at the time of publication represented a projected one-year return of 51.1 per cent.

Newman quickly addressed the overarching point that WELL supposedly overpaid for CRH and that they had another prospective buyer before WELL purchased them.

“United Digestive actually resigned with CRH in February of this year (albeit in a non-exclusive agreement and at lower economics than the initial agreement), while on the prior suitor, Newman said according to WELL, its US$4.00 per share bid for CRH, announced in February 2021, was in reality a lower offer than the US$4.50 offered by the other potential buyer in November 2019.”

The report suggests WELL paid a 300% premium for the healthcare practice management platform “Adracare”. Analysts say this is actually undervalued given the suite of technology it offers including a telehealth and practice management software and a light EMR system for allied healthcare professionals. AdraCare is expected to do $2M in revenue this year based on existing contracts, representing a purchase price for WELL of 2.4x revenue; respectable to say the least.

Analysts Fight Back

It became apparent the shorts were misinformed and didn’t do any research when they stated that Circle (a US telehealth company which WELL owns a majority stake in) is “years in time and decades in technology” behind the main telehealth players in the US. Analysts quickly noted that the report was “highly misleading” as Circle’s own CEO said the company is NOT a technology business and that Circle did not benefit from the Covid-19 tailwind in the telehealth space.

“Circle now operates three clinics in San Francisco, California and Texas, opened a new office in Montreal with a growing team of software developers (it plans to grow from the current 10 employees in the Montreal office to 75 over the next three years) and licenses out its technology to the Kind Health clinic in San Diego, California. Of its $10 million in revenue run rate, more than half comes from digital services (versus clinical),” Newman wrote.

Now to the point of WELL’s purchase of Insig Corp and its virtual clinics under Tia Health. WELL tells us Tia’s network involves over 400 doctors, not the reported 150 and is NOT a “startup with no total addressable market” but is instead a top 5 telehealth provider in Canada, supporting 2,800 healthcare practitioners and 500,000 patients and is targeting the digital healthcare market which PwC and Global Market Insights estimate to be $5 Billion in Canada and $106B globally.

The Facts

The report concluded by questioning the value of WELL’s technology, suggesting its OSCAR EMR business relies on open source software. This is false, and in fact,

“With the acquisition of OpenHealth and the customer migration from ClearMedica, WELL has effectively acquired all approved OSCAR EMR vendors in Canada, holding a ~14–15 per cent market share of the Canadian EMR market (trailing only TELUS Health and Loblaw’s QHR),” Newman wrote.

WELL has also “started to acquire non-OSCAR EMR providers such as Intrahealth, broadening its addressable market.” says Newman in his closing statement.

An Army Of Believers

Since the initial report, 12 analysts have come to the defense of WELL, including PI Financial analyst Kris Thompson who released a response on Wednesday.

Focusing on the present, Kris mentions that “ WELL has 27 clinics, the third-largest EMR business in Canada, telemedicine platforms in the US and Canada, a healthcare applications marketplace, cybersecurity assets and allied health assets.” and that only “Last month, WELL completed its biggest acquisition to date with CHR Medical, a US-based gastroenterology business for US$372.9 million.”

A World Class Company

Staying on the topic of WELL’s robust M&A capabilities, Thompson said “the CRH acquisition will significantly boost WELL’s earnings over the coming quarters, leaving the company in a good position to deploy cash flow from the CRH acquisition towards new growth opportunities in the US.”

Thompson followed up by noting that “In addition, WELL is backed by billionaire Hong Kong investor Li Ka-Shing. Mr. Ka-Shing was the lead investor in the $302-million equity financing (at $9.80/sh) CRH acquisition financing, subscribing to a $100-million equity investment with a group of investors including Horizon Ventures,” suggesting that the current price is infact undervalued compared to what investors believe WELL’s true valuation is.

Continuing on WELL’s impressive M&A streak and return of over 416% for the year, Thompson sees more upside in WELL and reinstated his “Buy” rating and a $10.5 Target price, which at the time of publication represents a 46% upside.