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Research Flash - Quipt Home Medical Corp. (QIPT:TSXV,$6.54|BUY $14.00 TARGET) Textbook Tuck-In Acquisition

This morning Quipt Home Medical announced the acquisition of California based respiratory supplier, NorCal Respiratory Inc. NorCal has three locations in Northern California, growing QIPT’s total footprint to 90 locations. This will allow QIPT to create a second hub in the Northern portion of California and target a region with a high prevalence of COPD. NorCal has several insurance contracts and is diversified among its referral and payor base. This acquisition represents QIPT’s second acquisition in Q3/22 (after the Good Night Medical acquisition announced April 19th). The acquisition adds over 600 referring physicians, bringing Quipt’s total network to 19,600 and adds over 3,600 active patients, bringing Quipt’s active patient count to 184K. Given the target’s focus on respiratory products (98% of its product mix), QIPT will have the opportunity to introduce its ventilation therapy program to NorCal’s patient base. The target company posted US$3.2M over the last twelve months and QIPT expects it to generate US$650K post integration. Quipt paid $3.1M in cash for NorCal, implying 1.0x sales and 4.8x EBITDA (in line with QIPT’s previous acquisitions, see Figure 1). We remind readers that QIPT ended Q2/22 with US$17.4M in cash and US$20M in undrawn credit, providing ample dry powder to continue executing on its M&A roll-up strategy.

We would like to reiterate that Owens & Minor (OMI:NYSE) acquired Apria Inc. (APR:NASDAQ) for 7x 2022E EBITDA in March 2022, despite APR being the slowest growing competitor in our peer group (+1% 2022E revenue growth). We view this as a major positive and floor valuation for QIPT, which currently trades at 4.9x forward EBITDA (the cheapest company in the DME group with the best growth rate). We continue to expect QIPT to execute on its roll-up strategy (at <1.0x sales) and take advantage of the favourable reimbursement environment to post 8%+ organic growth. We are maintaining our BUY rating and our $14.00/share target price based on 10.0x 2023E adjusted EBITDA.

20220607 - M Partners - QIPT - NorCal
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