Agility Health on The Cusp of Massive Revenue Growth
VANCOUVER, BC / June 5, 2014 / Why there isn’t a healthcare stock in every portfolio is confounding. Everyone knows the stats; from January 1st 2011, and for every day for the next 20 odd years, 10,000 Americans will turn 65. And the population needs more and better healthcare: not a fact that market investors should or can ignore. That said, the space seems to lack the requisite investment sex appeal, as even excellent growth healthcare companies seem to rarely even blip on investor radar screens.
That’s a major investment opportunity lost.
Given that 35% of those currently over the age of 65 rely solely on social security, it is imperative that healthcare be delivered in the most cost-effective and streamlined way possible. And there’s the opportunity for investors: source those companies that are already firmly established in the space and will only get more valuable as the population ages and, frankly, get sick, sore and infirmed.
"At $37 billion currently, the physical therapy market may seem small when compared to the total $1.7 trillion annual healthcare spend," stated Steve Davidson, Chairman and CEO of Agility Health (AHI: TSXV) in an exclusive interview with Financial Press. "Ironically, it will be one of the fastest growing revenue generators as these therapies are integral to the treatment of a large number of afflictions, including stroke, heart attack, diabetes and other major diseases and direct injury. A disease cured or a broken bone mended is one thing, but the return to full function takes time and various modalities of specialized physiotherapy."
Agility had been a private company for decades prior to going public in 2013 to accelerate their acquisition strategy and access more growth capital. With 2013 revenues of $63 million, the Company’s shareholders have enjoyed a 10% CAGR (compound annual growth rate) over the last 5 years. Based on the two acquisitions that were completed in late 2013, the company is on an approximate run rate of $70 million with a targeted EBITDA (earnings before interest taxes depreciation and amortization) margin of 10%. This revenue run rate does not include any further acquisitions being completed in 2014, for which the company has developed a significant pipeline.
Taking a group of five complementary stocks, with an average market cap of $765 million and revenue multiple of 1.2 times, Agility looks intriguing. With a current market cap of $41million there appears exceptional upside opportunity for investors. Let’s break AHI down against one large company, US Physical Therapy Inc (USPH: NYSE), which is about 10 times the size of Agility, which trades at $32.57 versus AHI’s $0.52 cents.
USPH operates 485 clinics in 43 states. Agility runs 160 service sites in 20 states. Market caps are $398 million and $41 million respectively. FY2013 revenue was $271 million versus $63 million. USPH’s share price is down 8% YTD, while Agility’s has doubled since it went public in Q4 2013.
The metrics suggest that this could well be a case of David catching up to Goliath.
In the last 12-months, the TSX has lost 6 prominent, long-term issuers in the healthcare and biotech space (CML Healthcare, Paladin Labs, Patheon, Atrium Innovations , YM Biosciences, and Medicago). These transactions have delivered great value for investors, who are now looking to deploy their capital into new healthcare stories; we believe Agility should be – and will be – one of the Companies to benefit from this situation.
The physical therapy industry remains fragmented. While there are 30,000 clinics in the US, the eight largest firms account for only 11.3% of the industry. The top 50 control 25% and no company has more than a 5% market share. Agility currently has less than 1%, so there is exceptional room for growth.
Agility intends to grow aggressively through a combination of organic hospital contract service or venture agreements and a roll-up strategy; acquiring a majority stake in clinics while leaving the owners and management in place with a good minority equity position.
Davidson states: "Our proprietary management software (AgileRPM), specific to the rehab market, is integral to any of our deals or acquisitions. New clinics under Agility find value in the infrastructure, technology and billing support that our software provides. The fact that it is also geared toward strict regulatory compliance just makes the businesses function more efficiently and is ultimately more profitable for all."
Agility operates in three distinct segments: Outpatient Clinics, Hospital contract services and Long Term Care contract services. The Company has acquired nine rehabilitation service companies over the past four years, some of which own as many as 9 clinics.
A few of Agility’s clinical service offerings include: spine and back therapy, women's health issues, sports medicine, sports performance training, injury prevention, aquatic therapy, cancer rehabilitation biomechanical evaluations, performing arts and dance medicine, vestibular rehabilitation senior care pediatric therapy and men's health treatment. The company also offers long-term care setting services, which include fall, wound care as well as assisting occupational therapists and speech-language pathologists in evaluating and treating residents with eating deficits.
Investors should take note, not only of Agility’s future revenue potential, but also of the rapid growth experienced since the public offering six months ago. The strength of the management team is exemplary and having more than tripled revenues since taking over Agility, the speed of growth is likely to continue if not increase. The Company has recently closed a Private Placement financing of $3.4 million at 60 cents and is currently reviewing several potential acquisition targets.
Davidson and his team have almost 100 years of direct healthcare business development experience. They bring the expertise and contacts necessary to deliver strong results as well as compelling and consistent shareholder value.
Agility Health trades at $0.52 cents with a market cap of $41 million.
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SOURCE: Financial Press
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